Refer to the Accompanying Balance Sheet for the First National

question 37

Multiple Choice

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. If a check for $14,000 is drawn and cleared against this bank, then its reserves and checkable deposits will be

• A) $50,000 and $120,000, respectively.
• B) $50,000 and $106,000, respectively.
• C) $36,000 and $120,000, respectively.
• D) $36,000 and $106,000, respectively.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed overhead—in the cost of a product.

Unit Product Cost

The calculation of the total cost (including materials, labor, and overhead) to produce a single unit of a product.

Variable Costing

A costing method in which all variable manufacturing costs are included as inventoriable costs, while fixed manufacturing overhead is treated as an expense of the period.

Net Operating Income

A company's operating income after all operating expenses, excluding taxes and interest, have been deducted.