A Bank Has a Concern Because They Feel That a Firm

question 75

Multiple Choice

A bank has a concern because they feel that a firm has an excessive amount of assets.They do not feel that the firm is efficient in generating sales from their current level of assets.What ratio are they most likely to examine to answer this question?

• A)Selling and administrative expenses/Net sales
• B)Net sales/Total assets
• C)Current assets - Current liabilities
• D)Net income/Total assets
• E)Long-term debt/(Long-term debt + Net worth)

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Definitions:

Direct Labor Hour

A measure of the amount of time spent by workers directly manufacturing a product or providing a service, used for cost allocation.

Fixed Factory Overhead Volume Variance

A variance that measures the difference between the budgeted and actual fixed factory overhead costs, attributing changes to fluctuations in production volume.

Fixed Overhead

Costs associated with running a business that do not change with the level of production or sales, such as rent, salaries, and insurance.

Variable Overhead Rate

Variable Overhead Rate is the portion of indirect manufacturing costs that varies in proportion to production volume or activity levels, such as utilities or raw materials.