Question

Expense amounts by natural classification can be determined from the statement of functional expenses, as can the expense amounts for program services and supporting services categories.

Option 1: Expense amounts cannot be determined from the statement of functional expenses
Option 2: Expense amounts can only be determined for program services from the statement of functional expenses
Option 3: Expense amounts can be determined for program services and supporting services categories (Correct Option)
Option 4: Expense amounts can only be determined for supporting services from the statement of functional expenses

Answer 1

Expense amounts can indeed be determined for both program services and supporting services categories from the statement of functional expenses. It categorizes expenses based on their function within the organization. The statement is a crucial tool for comprehensively understanding fixed and variable costs.

Step-by-step explanation:

The student is asking whether expense amounts by natural classification can be determined from the statement of functional expenses. The correct option is that expense amounts can be determined for both program services and support services categories from the statement of functional expenses. The statement of functional expenses divides expenses into categories based on function: program services, which relate directly to the mission of the organization, and supporting services, which include management and general expenses as well as fundraising expenses. This financial report shows how resources have been allocated in different areas of the organization.

For example, if a nonprofit organization is producing a report that includes a breakdown of costs, they can show how much was spent on program services such as educational workshops, and also what was allocated for supporting services like administration or fundraising.

Fixed costs and variable costs are two essential components of business expenditures. Fixed costs, such as rent, remain constant regardless of production levels, while variable costs fluctuate with production volume. Understanding these concepts can aid organizations in categorizing their expenses appropriately in the statement of functional expenses.