When the Distinction Between Variable and Fixed Costs Is One

question 122

Multiple Choice

When the distinction between variable and fixed costs is one of the important elements in the preparation of the income statement, the method used should be the

• A) capitalization method.
• B) contribution margin method.
• C) gross margin method.
• D) inventorial method.
• E) absorption method.

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Definitions:

CAPM Approach

Capital Asset Pricing Model, a framework used to determine the theoretical appropriate required rate of return of an asset, considering risk and the cost of capital.

Retained Earnings

The portion of a company's net income that is kept within the company rather than distributed to shareholders as dividends.

Target Capital Structure

The mix of debt, equity, and other securities a company aims to hold to finance its operations and investments.

Retained Earnings

Profits that a company keeps or retains rather than distributing to shareholders in the form of dividends, typically used for reinvestment.