Companies Value-To-Book and Market-To-Book Ratios May Differ Due to Accounting

question 58

Multiple Choice

Companies value-to-book and market-to-book ratios may differ due to accounting reasons.An example of an accounting reason that would create a difference is:

• A) accelerated methods of depreciation.
• B) investments in successful research and development programs that are expensed according to conservative accounting principles.
• C) using LIFO versus FIFO for inventory.
• D) high operating leverage.

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Definitions:

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels of the business.

Manufacturing Overhead

All indirect costs associated with the production process, excluding direct materials and direct labor.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity, providing a more accurate comparison of budgeted and actual performance.

Units

The individual articles, products, or services counted to measure and record inventory, production, or sales.