A Volume-Based Rate Is an Appropriate Overhead Application Base When

question 82

Multiple Choice

A volume-based rate is an appropriate overhead application base when:

• A)Several well-differentiated products are manufactured.
• B)Direct labor costs are large.
• C)Direct material costs are large relative to direct labor costs incurred.
• D)Only one product is manufactured.
• E)Manufacturing is process-based.

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Definitions:

Cash Basis

An accounting method where revenues are recognized when cash is received and expenses are recognized when paid.

Costs Expire

This concept relates to the recognition of expenses in the income statement when the underlying value or utility of the cost is consumed or no longer exists.

Operating Cycle

The time period between purchasing raw materials and collecting cash from selling finished goods, measuring the efficiency of a company's operations and cash flow.

Extraordinary Item

Unusual and infrequent gains or losses on a company's financial statements, not expected to recur in the foreseeable future, a concept that has been phased out in many accounting standards.