An Entity with a Higher Proportion of Fixed Costs to Variable

question 38

Multiple Choice

An entity with a higher proportion of fixed costs to variable costs compared to an entity with a lower proportion of fixed to variable costs is regarded as:

• A) having a lower operating leverage.
• B) equal in risk.
• C) more risky.
• D) less risky.

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Definitions:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead to products or job orders, calculated before the period begins based on expected costs and activity levels.

Labor Efficiency Variance

The difference between the actual hours worked and the standard hours expected for the work performed, multiplied by the standard hourly labor rate, indicating efficiency in labor use.

Insufficient Demand

A situation where the quantity of a product or service sought by buyers is less than the quantity supplied.

Laid Off

The termination of employment typically due to reduction in workforce by a company as a cost-saving measure.