The Parent Company Leased a Machine to Its Subsidiary Using

question 24

Short Answer

The parent company leased a machine to its subsidiary using a direct-financing lease that included a bargain purchase option. As a result of the intercompany lease, the following items should be eliminated in the consolidation process:

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Definitions:

Direct Labor Rate Variance

The difference between the expected cost of direct labor and the actual cost incurred, measured in financial terms.

Actual Costs

The real expenses incurred in manufacturing a product, providing a service, or running a business, as opposed to estimated or budgeted costs.

Standard Costs

Pre-determined or estimated costs used for cost control and decision-making purposes, often as a benchmark for measuring performance.

Direct Labor Rate Variance

The difference between the actual cost of labor and the expected (or standard) cost, used in budgeting and cost management.