Jones Operates an Upscale Restaurant and He Pays Experienced Cooks

question 3

Multiple Choice

Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year.This year he hired his son as an apprentice cook.Jones agreed to pay his son $40,000 per year.Which of the following is a true statement about this transaction?

• A)Jones will be allowed to deduct $40,000 only if his son eventually develops into an expert cook.
• B)Jones will be allowed to accrue $40,000 only if he pays his son in cash.
• C)Jones will be allowed to deduct $35,000 as compensation and another $5,000 can be deducted as an employee gift.
• D)Jones can only deduct $20,000 because an apprentice cook is only worth half as much as an experienced cook.
• E)None of the choices are true.

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Definitions:

Manufacturing Overhead

All indirect costs associated with the manufacturing process, including but not limited to utilities, maintenance, and salaries of non-direct labor.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to individual products or job orders based on a predetermined formula.

Machine-Hours

The quantity of time machines are in operation, regarded as a factor in production cost calculations.

Casting

A manufacturing process where a liquid material is poured into a mold and solidifies to take on a specific shape.