Which Statement Is True About the Activity Index Used in Preparing

question 98

Multiple Choice

Which statement is true about the activity index used in preparing the flexible budget?

• A)It applies only to fixed manufacturing costs.
• B)It is the same for all departments of the company.
• C)It significantly influences the variable costs that are being budgeted.
• D)It is irrelevant to total costs.

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Definitions:

Fixed Charge Coverage

A financial ratio that measures a company's ability to cover its fixed charges, such as interest and lease expenses, with its earnings before interest, taxes, depreciation, and amortization (EBITDA).

Dividends

Dividends are portions of a company's earnings paid out to shareholders as a reward for their investment.

Company's Ability

A company's capacity to execute its strategies, achieve its objectives, and fulfill its operational requirements effectively.

Negative Covenant

A clause in a loan agreement that restricts the borrower from certain actions, such as limiting dividend payments to shareholders or borrowing additional funds, to protect the lender's interests.