The Foremost Company Predicted Factory Overhead for 2018 and 2019

question 184

Multiple Choice

The Foremost Company predicted factory overhead for 2018 and 2019 would be $120,000 for each year. The predicted activity for 2018 and 2019 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows: $\begin{array}{lcc}&2018&2019\\\text { Sales in units } & 25,000 & 25,000 \\\text { Selling price per unit } & \$ 20 & \$ 20 \\\text { Direct materials and direct labor per unit } & \$ 10 & \$ 10\end{array}$ The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2018 and 2019 was $120,000. Assume that it takes one direct labor hour to make one finished unit.
When the annual estimated factory overhead rate is used, the gross profits for 2018 and 2019, respectively, are

• A)$150,000 and $150,000.
• B)$150,000 and $100,000.
• C)$250,000 and $250,000.

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Definitions:

Benefits

Forms of compensation provided to employees or the public, including health insurance, pension, and unemployment assistance.

Opportunity Cost

The cost of what is forgone in order to pursue a certain action; the value of the best alternative option that is not selected.

Subjective Values

The notion that the value of goods and services is determined by the preferences and perceptions of individuals, rather than by intrinsic characteristics.

Decision Making

The process of selecting among available alternatives based on the preferences and values of the decision-maker.