Many Ratios Require an Average Be Used for the Balance

question 48

Multiple Choice

Many ratios require an average be used for the balance sheet numbers because the

• A) income statement refers to a point in time.
• B) accountants may have made errors in the financial statements.
• C) balance sheet numbers are a point in time and are being compared to an income statement number that covers a period of time.
• D) income statement numbers represent a point in time and are being compared to a balance sheet number that covers a period of time.

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Definitions:

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.

Machine-Hours

This refers to the total number of hours that machinery is in operation, used as a basis for allocating manufacturing overhead to products.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products or job orders, calculated before the period begins based on estimated overhead and activity levels.

Machine-Hours

Rephrased: The total hours that machinery is in operation during a specific period, used as a basis for allocating manufacturing overhead costs.