If a Company Incurs a Lot of Different Variable Overhead

question 148

Multiple Choice

If a company incurs a lot of different variable overhead costs and the activity base is only slightly related to their consumption, which of the following statements is true?

• A)The variable overhead efficiency variance will be meaningless.
• B)The variable overhead spending variance will be meaningless.
• C)Both the variable overhead efficiency variance and the variable overhead spending variance will be meaningless.
• D)The variable overhead spending variance will be extremely informative.

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Definitions:

Gross Margin Ratio

A measure of a company's financial health, calculated as gross profit divided by net sales, showing the percentage of sales revenue that exceeds the cost of goods sold.

Perpetual Inventory System

An inventory management method that records the sale or purchase of inventory immediately through electronic tracking.

Gross Method

An accounting approach for recording purchases at the gross invoice amount before any trade discounts are taken.

Merchandising Transactions

Business activities related to the buying and selling of merchandise, which may involve inventory purchases, sales transactions, and the return of goods.