Which of the Following Costs Associated with a Delivery Van

question 138

Multiple Choice

Which of the following costs associated with a delivery van should be capitalized? I. The van is repainted.
II) The van's transmission is completely overhauled to extend useful life for two years.
III) The van is modified for a specific use.

• A) I and II
• B) I and III
• C) II and III
• D) All of these answers are correct.

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Definitions:

Fixed Monthly Expenses

Regular expenses that do not vary in amount from month to month, such as rent and salaries.

Net Operating Income

A measure of a company's profitability from its regular, core business operations, excluding deductions of interest and taxes.

Contribution Margin Ratio

The percentage of each sale that remains after variable costs are deducted, indicating how much revenue is contributing to fixed costs and profit.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in sales, reflecting the proportion of fixed costs in the company's cost structure.