Which Firm Provides the Better Signal When Trying to Decide

question 98

Multiple Choice

Which firm provides the better signal when trying to decide which of the firms' stock to buy?

• A)Firm A, which uses an independent accounting firm for auditing.
• B)Firm B, which uses an internal group for auditing.
• C)Firm C, which has seen its stock go up by $20 per share in the last week.
• D)Firm D, which hasn't been under SEC investigation for over 5 years.

Understand the concept and calculation of variances, including price and quantity variances.

Grasp the purpose and process of using standard costs in budgeting and variance analysis.

Recognize the role of management by exception in focusing managerial attention on significant variances.

Understand the distinctions between standard, actual, and budgeted costs.

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Definitions:

Variable Cost

Costs that change in proportion to the good or service that a business produces, such as raw materials and direct labor expenses.

Fixed Cost

Expenses that do not change with the level of production or sales over a certain period, such as rent or salaries.

Period Cost

Costs that are expensed in the period in which they are incurred, without direct link to production activity, such as selling, general, and administrative expenses.

Contribution Margin Ratio

A profitability ratio that measures the percentage of sales revenue that exceeds variable costs, indicating how much contributes to fixed costs and profit.