Application of the (Prudence)conservatism Assumption Can Produce

question 56

Multiple Choice

Application of the (prudence) conservatism assumption can produce:

• A)higher profits.
• B)higher values for assets.
• C)higher amounts for liabilities.
• D)lower amounts for expenses.

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes to covering fixed costs.

Variable Costing

A bookkeeping approach that incorporates just the variable costs of production (such as direct materials, direct labor, and variable factory overheads) into the costs of products.

Variable Costing

A costing method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product costs, excluding fixed overhead.

Net Operating Income

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