Which of the Following Is the Reason Why an Internally

question 78

Multiple Choice

Which of the following is the reason why an internally financed company selling its products at a lower price can earn more profit than a competitor who is operating on borrowed money?

• A) Investors are more likely to purchase a company's stock if it is internally financed.
• B) It is less expensive since no interest expense is involved.
• C) The value of stock of an internally financed company is easier to predict.
• D) Market forecast is more difficult if a company is operating on borrowed money.
• E) Commercial banks do not allow a company to borrow money unless it can provide collateral security.

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Definitions:

Labor Rate Variance

The difference between the actual cost of direct labor and the estimated cost, indicating how well labor costs were controlled.

Direct Labor-hours

The complete tally of hours that workers, directly involved in making products or providing services, spend working.

Actual Direct Labor Cost

The total expense of labor directly involved in the production of goods or services, as it actually occurred.

Labor Rate Variance

Labor rate variance measures the difference between the actual labor costs incurred and the expected (or standard) labor costs, indicating discrepancies in wage rates or labor efficiency.