A Subsidiary

question 18

Multiple Choice

A subsidiary:

• A) is excluded from consolidation because the investor is a venture capital organisation.
• B) is not excluded from consolidation simply because the investor is a venture capital organisation.
• C) is excluded from consolidation because its business activities are dissimilar from those of other entities within the group.
• D) is not excluded from consolidation simply because the investor only has significant influence, and not control, over it.
• E) is excluded from consolidation because the investor has no Board representation in the subsidiary.

---

Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (both fixed and variable) in the cost of a product.

Contribution Margin

The profit remaining after variable costs have been subtracted from revenue, indicating how much contributes to covering fixed costs and generating profit.

Variable Cost

Variable costs are expenses that change in proportion to the activity of a business, such as materials and labor costs.

Fixed Manufacturing Overhead

Consists of production costs that do not change with the volume of manufacturing activity, such as rent for the manufacturing facilities or salaries of plant managers.