Companies Generate Income from Their "Regular" Operations and from Other

question 60

Multiple Choice

Companies generate income from their "regular" operations and from other sources such as interest earned on the securities they hold,which is called non-operating income.Lindley Textiles recently reported $12,500 of sales,$7,250 of operating costs other than depreciation,and $1,000 of depreciation.The company had no amortization charges and no non-operating income.It had $8,000 of bonds outstanding that carry a 7.5% interest rate,and its combined federal and provincial income tax rate was 40%.How much was Lindley's operating income,or EBIT?

• A)$3,644
• B)$3,836
• C)$4,038
• D)$4,250

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Definitions:

Production

The process of creating goods and services from various inputs like raw materials and labor.

Purchasing

The process of obtaining goods or services, usually for business purposes.

Cost Drivers

Factors that cause a change in the cost of an activity, impacting the economic amount associated with production or delivery of a service.

Variable Costs

Costs that vary in direct proportion to changes in production or sales volumes, such as raw materials and direct labor.