If a Non-Binding Price Floor Were to Be Set in the Market

question 135

Multiple Choice

If a non-binding price floor were to be set in the market in the graph shown,it could be set at:

• A) $30.
• B) $23.
• C) $16.
• D) All of these would be binding price floors for this market.

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Definitions:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to products or job orders, based on a chosen activity base such as direct labor hours.

Variable Component

A part of a cost or expense that varies directly with the level of output or activity.

Fixed Component

A cost that remains unchanged in total regardless of changes in the level of activity or output over a certain period.

Overapplied

This refers to the condition in which the allocated costs in an accounting system exceed the actual costs incurred, often in the context of overhead or indirect costs in manufacturing.