Figure 3-5
the Overdale Plant Has Two Categories of Overhead $\begin{array}{ll}\text { Maintenance } & £ 120,000 \\\text { Inspection } & £ 200,000\end{array}$

question 36

Multiple Choice

Figure 3-5
The Overdale plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: $\begin{array}{ll}\text { Maintenance } & £ 120,000 \\\text { Inspection } & £ 200,000\end{array}$ The plant currently applies overhead using direct labour hours and expected capacity of 80,000 direct labour hours. The following data has been assembled for use in developing a bid for a proposed job: $\begin{array}{lr}\text { Direct materials } & £ 1,500 \\\text { Direct labour } & £ 5,000 \\\text { Machine hours } & 400 \\\text { Number of inspections } & 6 \\\text { Direct labour hours } & 750\end{array}$ Total expected machine hours for all jobs during the year are 40,000, and the total expected number of inspections is 2,500.
-Refer to Figure 3-5. Using activity-based costing and the appropriate cost drivers, the total cost of the potential job would be

• A)£9,230.
• B)£8,180.
• C)£2,250.
• D)£1,680.

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Definitions:

Accrual-Basis Accounting

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is received or paid.

Deferred Revenue

Income received by a company for goods or services yet to be delivered or performed, recognized as a liability until the obligation is fulfilled.

Unearned Rent

is income received by a landlord for rent that has been paid in advance by a tenant but has not yet been earned.

Adjust Revenue

The act of modifying the reported amount of revenue to more accurately reflect the earnings of a period, following certain accounting principles and standards.