In Comparison with a System That Uses a Single, Volume-Based

question 45

Multiple Choice

In comparison with a system that uses a single, volume-based cost driver, an activity-based costing system is preferred when a company has:

• A) a large proportion of non-unit-level activities.
• B) product-line diversity.
• C) minimal product-line diversity and a small proportion of non-unit-level activities.
• D) existing variances from budgeted amounts.
• E) product-line diversity and a large proportion of non-unit-level activities.

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Definitions:

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency.

Expressed

Typically refers to something stated explicitly or in a clear manner, often used in the context of contracts or mathematical terms.

Ratio

The expression of a financial statement item or set of items as a percentage of another financial statement item in order to measure an important economic relationship as a single number.

Solvency

The ability of an entity to meet its long-term financial commitments and debts as they come due.