Explain Why Returns on Assets Compensate for Systematic Risk but Not

question 54

Essay

Explain why returns on assets compensate for systematic risk but not for idiosyncratic risk.

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Definitions:

Factory Labor Expense

Costs associated with the wages and benefits of factory workers directly involved in producing goods.

Process Costing System

A costing method used in industries where production is continuous, assigning costs to units of product based on the process they go through.

Direct Materials

The raw materials that are used directly in the manufacturing of a product and can be easily traced to it.

Journal Entry

A record in the accounting journal that represents a business transaction, including information such as the date, accounts affected, and amounts debited and credited.