Using a Volume-Based Overhead Rate Based on Machine Hours to Assign

question 78

Multiple Choice

Using a volume-based overhead rate based on machine hours to assign manufacturing overhead to a product line that uses relatively few machine hours is likely to:

• A)Overapply overhead to the product line.
• B)Underapply overhead to the product line.
• C)Understate direct labor costs.
• D)Overstate direct labor costs.
• E)Either over- or under-apply overhead to the product line depending on many other factors.

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Definitions:

Identical Cost Curves

Identical cost curves refer to situations in economic analysis where businesses or production processes have the same cost structures, making their cost behaviors parallel at all levels of output.

Farm Produce

Agricultural products that are grown and harvested for consumption and sale, including fruits, vegetables, grains, and livestock products.

Long-run Equilibrium

It describes a state in which all factors of production and market forces are balanced, and no external pressures exist for change within an economic model.

Perfectly Competitive Market

A market structure characterized by many buyers and sellers, where no single entity can influence the market price of a homogeneous product.