In Interpreting Common-Size Financial Statements Denominated in a Foreign Currency

question 63

Multiple Choice

In interpreting common-size financial statements denominated in a foreign currency, a word of caution is that there may be differences in the

• A)accounting principles the companies use for reporting.
• B)culture of the company's stakeholders.
• C)time period covered in the statements.
• D)classification of balance sheet items.

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Definitions:

Margin of Safety

The difference between actual or expected sales and the sales level at the break-even point, indicating the amount by which sales can drop before the company incurs a loss.

Unit Variable Expenses

Costs that vary directly with the volume of production or sales per unit.

Fixed Expenses

Costs that do not change with the level of production or sales volume, such as rent and salaries.

Variable Expenses

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.