Firms with Substantial Amounts of Free Cash Flow Often Discover

question 58

Multiple Choice

Firms with substantial amounts of free cash flow often discover that:

• A) conglomerate mergers are the best use for the funds.
• B) accounting profits are what truly matter.
• C) they have become takeover targets.
• D) their capital budgets have been too low.

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overhead, which are incurred to convert raw materials into finished products.

Process Costing

A costing methodology employed in industries where production is continuous, assigning costs to units of product based on the processes they go through.

Weighted-Average Method

A method of costing inventory that calculates the cost of goods based on the average price of all similar items available throughout the period.

Process Costing

A costing method used for homogeneous products, where costs are pooled and then assigned to units, making it suitable for industries like chemicals or food processing.