In Calculating Cash Flows Provided (Used) by Operating Activities Using

question 128

Multiple Choice

In calculating cash flows provided (used) by operating activities using the indirect method, a loss on the sale of equipment is

• A)added to profit.
• B)deducted from profit.
• C)ignored because it does not affect cash.
• D)not reported on a statement of cash flows.

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Definitions:

Fixed Overhead

This term refers to indirect costs of running a business that do not change with the level of production or sales, such as rent, utilities, and salaries.

Variable Overhead Rate

The ratio of variable overhead costs to activity drivers such as hours worked or units produced.

Actual Production

The actual quantity of goods or services produced over a specific period, often compared to planned or theoretical production levels.

Favorable Volume Variances

Differences between planned and actual production volumes that result in lower costs or higher profits.