In Companies Where There Is Good Reason to Change from a Traditionally

question 36

Multiple Choice

In companies where there is good reason to change from a traditionally based costing system to an activity-based costing system, management might expect

• A)products or services with high volumes will have higher overhead costs.
• B)products or services with high volumes will have lowered overhead costs.
• C)products or services with low volumes will have lowered overhead costs.
• D)products or services with high volumes are generally costed accurately.

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Definitions:

Unlevered Firm

A company that operates without any debt financing, relying solely on equity for its financing needs.

Levered

Pertaining to the use of borrowed capital or debt to increase the potential return of an investment.

Break-Even EBIT

The level of Earnings Before Interest and Taxes that a company needs to achieve in order to cover all of its operating expenses without making a profit or loss.

Unlevered Cost

The cost of an investment or project that does not include the effects of borrowing; also known as the cost of capital with no debt financing.