Which Component Is More Likely to Be Biased If Book

question 112

Multiple Choice

Which component is more likely to be biased if book values are used in the calculation of WACC rather than market values?

• A)debt.
• B)preferred stock.
• C)common stock.
• D)all categories should be equally biased.

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Definitions:

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products or job orders, based on a predetermined formula before the accounting period begins.

Machine-Hours

A measurement of production time, representing hours a machine is operated within a given period.

Predetermined Overhead Rate

This rate is used to allocate manufacturing overhead costs to products or job orders based on a set formula, typically involving estimated costs and an allocation base like machine hours or labor hours.

Direct Labor-Hours

The total hours of work attributable directly to the production of goods, often used as a basis for assigning labor costs to units of product.