If a Firm's Capital Intensity Ratio (A0*/S0) Decreases as Sales

question 45

True/False

If a firm's capital intensity ratio (A0*/S0) decreases as sales increase, use of the AFN formula is likely to understate the amount of additional funds required, other things held constant.

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Definitions:

Direct Labor-Hours

The total hours worked by employees who are directly involved in the production of goods or services.

Predetermined Overhead Rate

A predetermined overhead rate is an estimated charge per unit of activity that is used to allocate indirect costs to products or services.

Assembly Department

A section of a manufacturing firm where products or components are assembled before final packaging or shipping.

Predetermined Overhead Rate

A rate used to apply manufacturing overhead to products or job orders, calculated before the period begins based on estimated costs and activity levels.