A Firm's Risk Can Be Partitioned into Financial Risk and Business

question 22

True/False

A firm's risk can be partitioned into financial risk and business risk. An increase in the financial risk results in a decrease in business risk. 

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Definitions:

High-Low Method

A technique used in cost accounting to estimate variable and fixed costs based on the highest and lowest levels of activity.

Variable Cost Element

A cost that varies directly with the level of production or sales volume, such as materials and direct labor.

Fixed Cost Element

The portion of total costs that does not change with the variation in activity level or production volume.

CVP Analysis

Cost-Volume-Profit Analysis, a tool used to determine how changes in costs and volume affect a company's operating income and net income.