Atraditional gaap income statement does not managers to predict the financial results of their decisions. which of the following is a reason for this shortcoming?

a. the gaap statement is based on cost function rather than cost behavior.
b. the gaap statement is based on classification rather than function.
c. the gaap statement is based on cost behavior rather than cost function.
d. the gaap statement is based on function rather than classification.

A) The GAAP statement is based on cost function rather than cost behavior.

Explanation:

Income statements that follow GAAP rules categorizes expenses based on their business function: product, selling or administrative.

While cost behavior categorizes costs based on how they influence a company's activities: variable, fixed and mixed. When a manager wants to measure the impact of any decision he/she makes, they need to use this type of categorization. For example, if fixed costs increase, what is the new break even point? If variable costs decrease, how is the marginal cost affected?

(a) when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

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income statement is prepared in order to show the profits and loss of a business. in order to prepare the income statement she should collect all the income and expenses of the product with the cost of production.