When Machine-Hours Are Used as a Cost-Allocation Base, the Item

question 37

Multiple Choice

When machine-hours are used as a cost-allocation base, the item most likely to contribute to a favorable production-volume variance is:

• A)an increase in the selling price of the product
• B)the purchase of a new manufacturing machine costing considerably less than expected
• C)a decline in the cost of energy
• D)strengthened demand for the product

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Definitions:

Accounting Basis

Refers to the method under which income and expenses are recognized and reported. The two primary methods are cash basis and accrual basis accounting.

NPV

Net Present Value, a calculation that discounts all cash flows associated with a project or investment back to the present value to assess its profitability.

Operating Cash Flow

A measure of the cash generated by a company's normal business operations, reflecting its capacity to sustain and grow operations.

Financial Break-Even

The point at which total revenue exactly covers total costs, leaving no profit or loss.