A Company That Produces Racing Motorbikes Has Several Models That

question 79

Multiple Choice

A company that produces racing motorbikes has several models that sell well within the motorcycle racing community and which are very profitable for the company. Despite having a profitable product, why must this company take care to ensure that it has sufficient cash on hand to meet its obligations?

• A) New models will require a lot of money to develop and bring to market before they generate any revenue.
• B) Profits from the sales of popular models will be lost when returned to the shareholders in the form of dividends.
• C) The company will have built up debts which must be repaid in order to bring the current models to market.
• D) Equity must be raised to finance the development of new models to replace the existing models.

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Definitions:

Service Department Expenses

Costs incurred by support departments within an organization, like HR and maintenance, which do not directly contribute to revenue but are necessary for operations.

Budget Performance Report

A financial report that compares actual financial results to the budgeted amounts for a specific period to assess performance.

Significant Variances

Large or meaningful differences between planned and actual figures in budgeting or accounting, requiring investigation.

Over Budget

Over budget refers to a situation where actual spending exceeds the planned or allocated amount for a particular budget category.