Which One of the Following Statements Is False Regarding the Gross

question 205

Multiple Choice

Which one of the following statements is false regarding the gross profit ratio?

• A) The gross profit ratio is a measure of profitability.
• B) The gross profit ratio is calculated by dividing net sales by gross profit.
• C) The gross profit ratio can help investors decide whether or not to buy a company's stock.
• D) The gross profit ratio should be compared with both a company's prior years' ratios and also competitor ratios.

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Definitions:

Factory Labor Costs

Expenses related to employees who directly engage in the manufacturing process of a company's products.

Overapplied Overhead

A situation where the allocated manufacturing overhead costs for a period exceed the actual overhead costs incurred.

Underapplied Overhead

A scenario where the estimated costs for manufacturing overhead are lower than the overhead costs that were actually encountered.

Predetermined Overhead Rate

An estimated charge per labor hour or machine hour used to allocate overhead costs to products or services.