Only Undertaking an Activity When It Adds More to Revenue

question 169

Multiple Choice

Only undertaking an activity when it adds more to revenue than to cost is the decision rule a profit-maximizing firm will use when deciding upon

• A) the level of output to produce.
• B) the amount of advertising to undertake.
• C) the level of product quality (for example, how many years it is designed to last).
• D) all of the above.

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Definitions:

Contribution Format

The contribution format is an income statement presentation that separates fixed costs from variable costs, highlighting the contribution margin.

Cost Of Goods Sold

The direct costs attributable to the production of the products sold in a company, including both materials and labor costs.

Product Costs

The costs directly attributed to the production of a product, including materials, labor, and manufacturing overhead.

Period Costs

Expenses that are not directly attached to product production and are accounted for in the period they are incurred, such as sales and administrative expenses.