Knowledge About the Behavior Pattern of a Cost Is Important

question 57

Multiple Choice

Knowledge about the behavior pattern of a cost is important to understanding the effect on net income of a change in sales volume because as sales volume changes:

• A) net income will change proportionately.
• B) the effect on net income will depend on the behavior pattern of various costs.
• C) fixed costs will rise proportionately.
• D)variable costs will not change.

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Definitions:

Excess Capacity Scenario

A situation where a company can produce more goods or services than currently demanded because of available resources exceeding production requirements.

Sales Increase

The rise in the amount of goods or services sold by a company within a specific period.

Capacity Level

The maximum output or production level that a facility, plant, or business can achieve under normal operations.

Net Working Capital Turnover

A ratio used to measure how effectively a company is using its short-term assets and liabilities to generate revenue.