How Much Value Would Be Added to a Firm That

question 24

Multiple Choice

How much value would be added to a firm that could permanently reduce its collection period by 2 days if daily collections average $10,000 and the opportunity cost is 5% annually?

• A) $1,000
• B) $1,200
• C) $10,000
• D)$20,000

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Definitions:

Variable Costing

An accounting method that considers only variable costs in calculating the cost of goods sold and determining profitability.

Manufacturing Margin

The difference between the sales income generated by manufactured goods and the cost of goods sold.

Absorption Costing

An accounting method that includes all manufacturing costs – direct materials, direct labor, and both variable and fixed overhead – in the cost of a product.

Contribution Margin

A financial metric that represents the difference between a product's sales revenue and its variable costs.