Which of the Following Statements Is Correct

question 57

Multiple Choice

Which of the following statements is correct?

• A)The factoring of accounts receivable consists of a series of individual cycles as opposed to a continuous process.
• B)Once a factoring agreement is in force, funds from this source are spontaneous in the sense that an increase in sales will automatically generate additional credit from the factor.
• C)One of the main disadvantages of pledging or factoring is the significant lack of flexibility.
• D)One disadvantage of factoring is that it reduces the need of the selling firm to maintain a credit department.
• E)The cost of pledging and factoring generally is very low and the risk bearing fee is incorporated into the interest rate charged on the unpaid balance of the funds advanced by the factor, which is usually one half of
• One percent above the prime rate.

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Definitions:

Machine-Hours

The total hours that machinery is operating in the production process, often used as a basis for allocating costs to products.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, calculated before the production period based on an estimation of costs and activity levels.

Machine-Hours

A unit of measure representing the operation of machinery over time, typically used for allocating manufacturing overhead costs.

Predetermined Overhead Rate

A rate calculated at the beginning of a period for allocating estimated overhead costs to cost objects based on a chosen activity base.