Negative Financial Leverage Occurs When the

question 97

Multiple Choice

Negative financial leverage occurs when the

• A)average net (after tax) interest rate on borrowed funds is less than the company's earnings rate on its assets.
• B)return on assets is more than return on equity.
• C)return on equity is more than return on assets.
• D)operating expenses exceed gross margin.

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Definitions:

Direct Labor-Hours

The total hours of labor directly involved in producing goods, used as a base to allocate labor costs to products.

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the standard cost of variable overhead allotted based on the activity level.

Variable Overhead Efficiency Variance

The difference between actual hours worked to produce an item and the standard hours expected, multiplied by the variable overhead rate.

FOH Volume Variance

The difference between the budgeted fixed overhead and the applied fixed overhead, which is attributed to the difference in actual and budgeted activity levels.