1. Explain in detail why it is important to distinguish product cost from period cost and the impact an error will have on the income statement and balance sheet if manufacturing overhead is incorrectly labeled as a period cost.

2. Explain what is meant by 'activity base' when dealing with variable cost. Provide at least one example of an activity base and how it affects the variable cost.

3. Explain the difference in cost breakdown between a traditional format income statement and a contribution format income statement? What benefit do you see in using one over the other? Which format is required by GAAP?