Question

Which of the following is not true with regards to service companies? a. Service companies do not use absorption costing to allocate fixed costs. b. A contribution margin report cannot be used to analyze and evaluate market segments. c. Service companies do not report manufacturing margin. d. All of these choices are true with regards to service companies.

Answer 1

c. Service companies do not report manufacturing margin.

Step-by-step explanation:

Only c. Service companies do not report manufacturing margin is true statement.

Reason: There is no manufacturing while providing services, generally, sometimes there is minimal manufacturing, even in that case there is no manufacturing margin.

Statement a. which states that service company do not use absorption costing is false, as it generally uses absorption costing stating cost per service.

Statement b. which states that contribution margin income statement cannot be used to analyze and evaluate market segments is false as this statement can be divided into various segments, showing maximum margin from each segment.

Also stated above is the reason for choosing statement c.

And since a) and b) are not true d) cannot be the option.

True Statement

c. Service companies do not report manufacturing margin.