Which of the Following Statements Is CORRECT

question 53

Multiple Choice

Which of the following statements is CORRECT?

• A)The more depreciation a firm reports, the higher its tax bill, other things held constant.
• B)People sometimes talk about the firm's cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line."
• C)Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's cash flow.
• D)Operating income is derived from the firm's regular core business. Operating income is calculated as Revenues less Operating costs. Operating costs do not include interest or taxes.
• E)Depreciation is not a cash charge, so it does not have an effect on a firm's reported profits.

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable production costs are deducted, contributing to covering fixed costs and generating profit.

High-Low Method

A technique used in accounting to estimate variable and fixed costs based on the highest and lowest levels of activity.

Mixed Cost

A cost that contains both variable and fixed cost elements, making its total cost vary with changes in activity, but not proportionately.

Engineering Approach

A methodology used in problem-solving and designing solutions, which involves applying scientific and mathematical principles.