In Order to Understand If the Results of Ratio Calculations

question 96

Multiple Choice

In order to understand if the results of ratio calculations indicate a financially strong company,the results:

• A)Should be compared to other firms in the same industry.
• B)Are compared to same size firms in the same geographic region of the country.
• C)Are compared to the norms established by generally accepted accounting principles.
• D)Are compared to the largest firms in the country.

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Definitions:

Absorption Costing

A calculation method for product pricing that includes all components of manufacturing costs—direct materials, direct labor, both variable and fixed overheads— into the product's overall cost.

Net Operating Income

The profit generated from a business's operations after subtracting operating expenses but before deducting interest and taxes.

Variable Costing

A pricing approach that incorporates only variable manufacturing expenses into the cost of products, while considering fixed overhead costs as expenses for the period.

Variable Costing

An accounting method that only includes direct variable costs in product costing and decision-making processes.