1.All other things the same, if long-term debt is exchanged for short-term debt,

Question

1.All other things the same, if long-term debt is exchanged for short-term debt, the debt-to-equity ratio will be unchanged.

True
False

2.If demand is insufficient to keep everyone busy and workers are not laid off, an unfavorable (U) variable overhead efficiency variance often will be a result unless managers build excessive inventories.

True
False

3.A revenue variance is unfavorable if the revenue in the static planning budget is less than the revenue in the flexible budget.

True
False

4.When computing the break even for a segment, the calculations include the company’s common fixed expenses.

True
False

Explanation / Answer

1. True.

The debt to equity ratio is the proportion of total debt of the company which is short term debt and long term debt to the total equity. hence, if short term and long term debt are interchnaged, the total debt will remain the same.

2. True

laying off of labours will lead to decrease in the variable overhead expenses and thus variance will occur

3. False

Unfavourable revenue variance occurs when the actual revenue is less than the budgeted. If the revenue in static budget is less than flexible buget, it may not necessarily be unfavourable beucase flexible budget is prepared for the actual units sold. if the actual units sold is more than the budgeted but the selling price is less, however the total revenue in flexible is more than the static budget, the vairance is unfavourable becuase the selling price per unit is less.

4. False

Break even point is calculated as fixed expenses divided by the contribution margin. for the segment, the fixed expenses for the segment only should be considered.

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