As Long as a Firm's Rate of Return Is Greater

question 71

Multiple Choice

As long as a firm's rate of return is greater than the cost of the debt (interest rate) the owner's rate of return on equity will _____ as the firm uses more debt.

• A) decrease
• B) increase
• C) remain the same
• D) fluctuate

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Definitions:

FOH Volume Variance

The difference between the budgeted and actual volume of production, affecting fixed overhead costs.

FOH Budget Variance

The difference between the actual factory overhead costs and the budgeted or standard overhead costs allocated for a period.

Labor Efficiency Variance

The difference between the actual hours worked and the expected hours worked, valued at the standard labor rate.

Labor Rate Variance

The variance between the real labor cost and the anticipated (or norm) cost, calculated based on the working hours.