In the Situation Where an Entity Has Invested in Segments

question 75

Multiple Choice

In the situation where an entity has invested in segments that are diverse:

• A) Segment information should enable the users of the financial statements to better predict the future profitability of the entity.
• B) Segment information should enable the users of the financial statements to better predict the risk exposure of the entity.
• C) Segment information is less useful because according to portfolio theory investments that are not correlated reduce the risk of an entity.
• D) Segment information should enable the users of the financial statements to better predict the future profitability of the entity and enable the users of the financial statements to better predict the risk exposure of the entity.

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Definitions:

Labor Efficiency Variance

A measure of the difference between the actual hours worked and the standard hours expected to produce a certain level of output.

Standard Cost System

An accounting method that uses cost estimates for labor, materials, and overhead to assign costs to products, facilitating variance analysis between expected and actual costs.

Actual Results

The real financial or operational outputs of a business, as opposed to projections or estimates.

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the expected (or standard) variable overhead allocated, based on activity level.