Activity-Based Budgets

question 128

Multiple Choice

Activity-based budgets

• A)use the knowledge of cost behavior to split the functional-based line items into fixed and variable components.
• B)start with output and then determine the resources necessary to create that output.
• C)rely on the use of functional-based line items.
• D)work in environments where the products are homogenous and the production process is simple.

Grasp the importance of the current ratio and working capital measurement in assessing a company's liquidity.

Comprehend the debt to total assets ratio for evaluating a company's solvency.

Identify the relevance of the price-earnings ratio in assessing a company's stock value.

Understand the basic earnings per share and its significance to investors.

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Definitions:

Fixed Costs

Expenses that do not change with the level of goods or services produced by a business over a certain period.

Net Income

The total earnings of a company after all expenses and taxes have been subtracted from total revenue.

Sales

The revenue generated from goods or services sold by a company in the ordinary course of its business.

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted; it contributes towards covering fixed costs and generating profit.