A Company, Pluto Inc

question 26

Multiple Choice

A company, Pluto Inc., employs the franchising strategy to enter a new national market. Which of the following statements is more likely to be true of Pluto?

• A) It is more likely to be a service company.
• B) It is more likely to have a greater control over the quality the products manufactured in the foreign country.
• C) It is less likely to impose strict rules regarding how a franchisee does business.
• D) It is less likely to receive royalty payment from the franchisee.
• E) It is more likely to bear the development costs associated with opening a foreign market on its own.

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Definitions:

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead to individual products or job orders, based on a specific activity base, such as labor hours or machine hours.

Fixed Component

The portion of total costs that remains unchanged regardless of the level of production or business activity.

Variable Overhead Rate

The cost of indirect manufacturing expenses that fluctuate with production volume, calculated per unit of activity or base.

Efficiency Variance

A measure used in cost accounting to determine the difference between the actual cost of producing an item and the standard cost, based on the actual hours worked.