You Are a Banker Reviewing a Loan Application from a Local

question 112

Multiple Choice

You are a banker reviewing a loan application from a local business.Which of the following ratios would you look at to get a quick measure of the business's ability to meet its long-term financial obligations?

• A) Liquidity ratio
• B) Return on assets
• C) Debt ratio
• D) Current ratio
• E) Activity ratio

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Definitions:

Labor Rate Variance

It's the difference between the actual cost of labor and the budgeted or standard cost of labor.

Standard Hourly Rate

A fixed rate paid or charged for one hour of labor or service.

Actual Output

The real quantity of goods or services produced by a business during a specific period.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels, allowing more accurate budgeting and variance analysis.