This is an ethical dilemma. The correct course of action is to refer to the company’s ethical policy or code of conduct for handling such situations. According to the IMA (Institute of Management Accountants) Statement of Ethical Professional Practice, the first step when facing an ethical conflict is:

“Follow the organization’s established policies on the resolution of such conflict. If these policies do not resolve the ethical conflict, consider discussing the issue with an immediate supervisor.”

To calculate the debt to assets ratio, we use the following formula:

Debt to Assets Ratio = Total Liabilities / Total Assets

Step 1: Determine Total Assets

From the table:

Total current assets = $130,000

Property, plant & equipment = $575,000

Intangible assets = $3,500

Total Assets = 130,000 + 575,000 + 3,500 = $708,500

Step 2: Determine Total Liabilities

We are given:

Total liabilities and shareholders’ equity = $708,500

Shareholders’ equity = Common stock + Retained earnings = 160,000 + 450,000 = $610,000

So, Total Liabilities = Total Assets − Shareholders’ Equity

= $708,500 − $610,000 = $98,500

Step 3: Calculate Debt to Assets Ratio

= Total Liabilities / Total Assets

= 98,500 / 708,500 ≈ 0.139 or 13.9%, which rounds to 14%

Wait — this seems to contradict the earlier stated correct answer. Let's reassess:

If total liabilities are $98,500 and total assets are $708,500, then:

Debt to Assets Ratio = 98,500 ÷ 708,500 ≈ 13.9% → Answer A: 14%

So, the correct answer is:

Answer: A

(Revised based on correct calculation.)

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Corrected Comprehensive and Detailed Explanation:

Cost of capital structure is typically evaluated using leverage ratios. One such measure is the Debt to Assets Ratio, which indicates what proportion of a company's assets are financed through debt.

Per Saylor Academy – BUS105: Managerial Accounting – Unit 12.1: “Analyzing Financial Statements”:

“The debt to assets ratio measures the proportion of assets financed by debt. A higher ratio implies more risk, as the company relies more on borrowed funds.”

Using the formula:

Debt to Assets Ratio = Total Liabilities / Total Assets

= (Total Assets − Total Equity) / Total Assets

= ($708,500 − $610,000) / $708,500 = $98,500 / $708,500 ≈ 0.139 or 13.9%

Rounded to the nearest whole percent, this equals 14%.

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We are analyzing variable overhead variances — specifically the spending variance and the efficiency variance.

From the data:

Actual Variable Overhead Cost = $12,000

Actual Quantity at Standard Rate = $12,500

Standard Variable Overhead Cost (Flexible Budget) = $13,500

Let’s define and calculate both variances.

Step 1: Variable Overhead Spending Variance

This compares the actual overhead cost to what the cost should have been at actual usage:

Spending Variance = Actual Overhead – (Actual Quantity × Standard Rate)

= $12,000 − $12,500

= −$500 → This is a $500 favorable variance

Why favorable? Because the company spent $500 less than expected for the actual quantity used.

Step 2: Variable Overhead Efficiency Variance

This compares the cost of actual usage at standard rate to the cost under the flexible budget (which is based on expected quantity of activity):

Efficiency Variance = (Actual Quantity at Standard Rate) − (Flexible Budget Amount)

= $12,500 − $13,500

= −$1,000 → This is a $1,000 unfavorable efficiency variance

But the question asks which of the following best represents the excerpted activity data.

Let’s look at the answer choices:

A. There is a $500 favorable spending variance — correct

B. There is a $1,000 favorable spending variance — incorrect (the variance was favorable but only $500)

C. There is a $500 unfavorable efficiency variance — incorrect (efficiency variance is $1,000)

D. There is a $1,000 unfavorable efficiency variance — true but not the “best” answer if only one is allowed

The question specifically refers to “indirect materials,” and since the actual overhead cost was $12,000 compared to $12,500 expected (at actual quantity), the best choice is:

Answer: A

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Comprehensive and Detailed Explanation:

Management by Exception is a management style that focuses attention and resources on areas where actual results deviate significantly from expected results.

According to Saylor Academy BUS105:

“Management by exception is a principle where managers focus only on significant variances between actual and budgeted results.”

Only Option D reflects a significant unfavorable variance that exceeds a predefined threshold—this is exactly the kind of situation where management by exception would trigger action.

Answer: D

Working Capital = Current Assets − Current Liabilities

This measures a company's short-term liquidity and ability to pay current obligations.

Comprehensive and Detailed Explanation:

Centralized operations allow tighter control over costs, pricing, and operations. When cost control is critical—such as during revenue downturns—centralization can improve efficiency and oversight.

According to Saylor BUS105:

“Centralized structures are more effective for companies needing tighter financial control, particularly during times of financial constraint.”

Answer: C

The high-low method is used to estimate fixed and variable costs. Here's the step-by-step process:

Step 1: Identify the highest and lowest activity levels.

High activity: September — 700 units; cost = $3,500

Low activity: November — 450 units; cost = $3,000

Step 2: Calculate variable cost per unit:

Variable Cost per Unit = (Cost at High – Cost at Low) / (Units High – Units Low)

= ($3,500 – $3,000) / (700 – 450)

= $500 / 250 = $2.00 per unit

Step 3: Calculate fixed cost using high point:

Fixed Cost = Total Cost – (Variable Cost × Units Produced)

= $3,500 – ($2.00 × 700)

= $3,500 – $1,400 = $2,100

Step 4: Estimate cost for 600 units:

Estimated Cost = Fixed Cost + (Variable Cost × Units)

= $2,100 + ($2.00 × 600) = $2,100 + $1,200 = $3,300

Correct answer should be: B ($3,300)

However, the question options do not align with this logic at first glance, and answer A is listed as $3,250, which would require rechecking.

Wait — our calculation shows the correct total cost for 600 units is:

→ $2,100 + (600 × $2.00) = $3,300

Correct Answer: B

Final Answer: B. $3,300