Final answer:
The statement is true; long-term obligations are financial responsibilities not expected to be settled within the next year or operating cycle. The concept aligns with the flexibility in the long run where all costs are variable allowing for significant operational changes.
Step-by-step explanation:
True, long-term obligations are financial responsibilities that a company anticipates will not be fulfilled within the next year or its operating cycle, whichever is longer. This definition is crucial for understanding how businesses plan for their future operations and financial stability.
In the long run, a firm has the flexibility to adjust its production technologies and operational scale because all costs become variable after fixed commitments, like leases, have ended. For example, if a business has a one-year lease on a factory, once that lease expires, the business can choose to move to a different location or alter the size of its operations. Therefore, planning in this period involves comparing alternative approaches to optimize production processes and facility investments, without the constraints of current fixed costs, such as existing lease agreements.