AB Distributors Is a Company That Serves as a Shipping

question 73

Multiple Choice

AB Distributors is a company that serves as a shipping intermediary for other companies. Its sales revenue has increased from the previous year. Jonathan, a sales manager at AB, says, "Since the company has increased its revenue, it is now more profitable." Which of the following points out a flaw in Jonathan's reasoning?

• A) Information about the company's expenses is necessary to tell whether it is profitable.
• B) AB Distributor may have lost money the previous year.
• C) Most of AB Distributor's employees are relatively new.
• D) Not all of the revenue may contribute toward profits.
• E) Many of AB Distributor's competitors may not be doing as well.

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Definitions:

Average Actual Selling Price

The mean price at which goods or services have been sold, calculated over a specific period or volume of sales.

Spending Variance

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost. A favorable (unfavorable) spending variance occurs because the cost is lower (higher) than expected, given the actual level of activity for the period.

Static Planning Budget

A budget based on a fixed level of activity that does not change with actual levels of output, sales, or other activity measures.

Controlled Costs

Costs that can be influenced or managed by decisions made by managers or company officials.