For What Reason Have Companies Recently Chosen Machine Hours as an Activity

question 56

Multiple Choice

For what reason have companies recently chosen machine hours as an activity base when calculating a predetermined overhead rate?

• A)an increase in direct labour costs
• B)it is a more reliable source than other activity bases
• C)the lack of verifiable hours for direct labour
• D)an increasing use of automated manufacturing operations

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Definitions:

Allowance for Doubtful Accounts

A contra-asset account that represents the amount of accounts receivable a company does not expect to collect.

Accounts Receivable

The money owed to a business by its customers for goods or services that have been delivered or sold but not yet paid for.

Allowance Method

An accounting technique used to account for bad debts, estimating uncollectible accounts as an expense to the income statement and reducing accounts receivable on the balance sheet.

Allowance Method

An accounting technique used to estimate and account for bad debts by establishing an allowance for doubtful accounts.