A Firm Is Expected to Generate $1

question 55

Multiple Choice

A firm is expected to generate $1.5 million in operating income and pay $250,000 in interest.Ignoring taxes,this will generate $12.50 earnings per share.What will happen to EPS if operating income increases by 33.3% to $2.0 million?

• A) EPS increases by 25% to $15.63.
• B) EPS increases by 33.3% to $16.67.
• C) EPS increases by 40% to $17.50.
• D) EPS increases by 60% to $20.00.

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Definitions:

Direct Labor

Refers to the wages paid to workers who are directly involved in the production of goods or services.

Fixed Overhead Budget Variance

The difference between the actual fixed overhead costs incurred and the budgeted or expected costs, indicating overhead management effectiveness.

Fixed Manufacturing Overhead

Costs that do not vary with the level of production or sales, such as salaries of factory supervisors and rent of the manufacturing facility.

Materials Price Variance

The difference between the actual cost of raw materials and the standard cost multiplied by the quantity of materials purchased, used as a measure of cost control.