Companies Recognize Revenue Only When

question 105

Multiple Choice

Companies recognize revenue only when:

• A) A contract is reasonably likely to exist.
• B) A performance obligation is designated in a written contract.
• C) A written contract is in place and payment is variable.
• D) Control over goods or services has been transferred from the seller to the customer.

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Definitions:

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salary, or insurance, providing stability to a company's expense structure.

Margin of Safety

The difference between actual or projected sales and the break-even point, often expressed as a percentage.

Contribution Margin Ratio

A financial metric showing the percentage of revenue that exceeds total variable costs, indicating how much revenue contributes to fixed costs and profit.

Break-even Sales

The amount of revenue needed to cover all fixed and variable costs, resulting in no profit or loss.