All Else Equal, Which of the Following Is the Most

question 129

Multiple Choice

All else equal, which of the following is the most likely to occur if actual sales are much less than forecasted sales?

• A) The company will be in a better position to pay down most of its debt.
• B) The firm's actual investment in inventory will be unchanged from the amount forecasted.
• C) Accounts receivable will rise significantly above the forecast.
• D) The company might face a cash flow crunch.

---

Definitions:

Budgeted Activity

Planned or expected levels of operational activity, which may include sales volume, production quantities, or labor hours, for budgeting purposes.

Fixed Overhead

Costs that do not change with the level of production or sales over a short period, such as rent, salaries, and insurance.

Budget Variance

The difference between what was budgeted or planned in terms of financial performance or cost, and what was actually achieved.

Labor Efficiency Variance

The difference between the actual labor hours used and the standard hours expected for the level of production achieved.