Three of the Following Considerations May Suggest That the Firm

question 60

Multiple Choice

Three of the following considerations may suggest that the firm should start paying out cash to its shareholders.Which one is not a relevant consideration?

• A) Is the company generating positive free cash flow?
• B) The company is earning a high profit margin?
• C) Does the company have sufficient cash for emergencies and unexpected investment opportunities?
• D) Is the debt ratio prudent?

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Definitions:

Overapplied Overhead

Happens when the overhead assigned to products exceeds the actual overhead costs incurred, resulting in excess allocation that needs adjustment in accounting records.

Adjusted Cost

The net cost of an asset after adjusting for depreciation, amortization, or other expenses incurred over its life.

Finished Goods Inventory

Products completed and ready for sale, yet remain unsold.

Underapplied Manufacturing Overhead

Occurs when the allocated manufacturing overhead costs are less than the actual overhead costs incurred.