The Management of Bullinger Corporation Would Like to Investigate the Possibility

question 212

Multiple Choice

The management of Bullinger Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 11,000 machine-hours. Capacity is 14,000 machine-hours and the actual level of activity for the year is assumed to be 9,700 machine-hours. All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $15,070 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity. It is further assumed that this is also the actual amount of manufacturing overhead for the year.If the company bases its predetermined overhead rate on the estimated amount of the allocation base for the upcoming year, then the predetermined overhead rate is closest to:

• A) $1.37 per machine-hour
• B) $1.54 per machine-hour
• C) $1.08 per machine-hour
• D) $1.55 per machine-hour

Calculate net realizable value of receivables and understand its significance in financial reporting.

Understand the impact of sales returns, allowances, and credit card discounts on gross profit calculation.

Prepare adjusting entries related to uncollectible accounts and understand their impact on financial statements.

Understand the effect of changes in accounts receivable on cash flow from operating activities.

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Definitions:

Unlevered Cost

A cost or rate of return analysis that does not include the impact of debt financing, reflecting the company's cost of capital without leverage.

Cost of Equity

The return that investors require for investing in a company's equity, representing the compensation for taking on the risk of investing in the company.

Debt/Equity Ratio

A metric that illustrates the division of financing between debt and equity for a company's assets.

Cost of Equity

The return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital.