A Wholly-Owned Subsidiary That Handles the Credit Function for the Parent

question 193

Multiple Choice

A wholly-owned subsidiary that handles the credit function for the parent firm is called a(n) :

• A) Controlled disbursements company.
• B) Junior subsidiary firm.
• C) Parallel payments firm.
• D) Captive finance company.
• E) Operating division.

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Definitions:

Fixed Expenses

Costs that do not change with the level of production or sales over the short term, such as rent, salaries, and insurance.

Break-even Point

The break-even point is the sales level at which total revenues equal total costs, resulting in neither profit nor loss.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, showing the impact of fixed costs on earnings.

Net Operating Income

A measure of a company's profitability, calculated by subtracting operating expenses from gross profit, not including non-operating income and expenses, interest, and taxes.