Investors and Analysts Are Sometimes Urged to Ignore Traditional GAAP

question 17

Multiple Choice

Investors and analysts are sometimes urged to ignore traditional GAAP numbers and instead focus on nonstandard "pro forma" numbers because

• A)the political compromises made to achieve consensus when issuing FASB pronouncements lead to inaccurate portrayals of underlying events.
• B)management believes the pro forma numbers portray the company in a better light.
• C)the pro forma numbers are closer to those reported under international reporting standards.
• D)pro forma numbers are easier to understanD.

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Definitions:

Fixed Manufacturing Overhead

The portion of the total manufacturing overhead costs that does not vary with the level of production, including costs such as rent, property taxes, and salaries of permanent staff.

Work in Process

Partially completed goods that are still in the production process at the end of an accounting period.

Standard Cost System

An accounting system that uses standard costs for product costing, based on expected costs.

Fixed Manufacturing Overhead

Expenses in a manufacturing process that remain constant regardless of the level of production, including costs like factory lease payments and equipment maintenance.