A Practical Decision to Expense Small Capital Expenditures Rather Than

question 38

Multiple Choice

A practical decision to expense small capital expenditures rather than record them as property,plant,and equipment and depreciate them is probably made on the basis of the convention of

• A) comparability.
• B) consistency.
• C) materiality.
• D) faithful representation.

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Definitions:

Variable Cost

Costs that vary directly with the level of output or production activity, such as raw materials or hourly labor.

Cash Break-even

The point at which a company does not make a profit or loss from operations, calculated by covering all cash operating expenses with the revenue generated.

Net Present Value

A calculation used to determine the value of a project or investment by discounting future cash flows to the present.

Marginal Cost

The cost of producing one additional unit of a product, essential in economic theory for determining the optimal production level.