Identify and Explain the Two Profitability Ratios a Small Business

question 1

Essay

Identify and explain the two profitability ratios a small business owner can use to measure how effectively he/she is managing the business.

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Definitions:

Indirect Labor

Labor costs associated with employees who do not directly work on a product, but whose services are necessary for the manufacturing process.

Job-Order Cost System

An accounting system that collects and assigns manufacturing costs to individual units or batches of production, enabling precise tracking of material, labor, and overhead costs.

Employee Time Ticket

A document or record used to track the amount of time an employee spends on various tasks or projects.

Actual Overhead

The real, incurred overhead costs within a specific accounting period, as opposed to budgeted or standard overhead costs.