Adams Company Predicted Factory Overhead for Year 2 and Year

question 102

Multiple Choice

Adams Company predicted factory overhead for Year 2 and Year 3 would be $120,000 for each year. The predicted activity for Year 2 and Year 3 would be 30,000 and 20,000 direct labour hours, respectively. Additional data are as follows:
$\begin{array}{lcc}&\underline{\text { Year } 1} & \underline{\text { Year } 2}\\\text { Sales in units } & 25,000 & 25,000 \\\text { Selling price per unit } & \$ 20 & \$ 20 \\\text { Direct materials and direct labour per unit } & \$ 10 & \$ 10\end{array}$ The company assumes that the long-run normal production level is 20,000 direct labour hours per year.The actual factory overhead cost for the end of Year 1 and Year 2 was $120,000.Assume that it takes one direct labour hour to make one finished unit.
-Refer to the figure.When the annual estimated factory overhead rate is used,what are the gross profits for Year 2 and Year 3,respectively?

• A)$120,000 and $100,000
• B)$120,000 and $150,000
• C)$150,000 and $100,000
• D)$250,000 and $250,000

---

Definitions:

Random Dispersion

The spatial distribution pattern of a population in which the presence of one individual has no effect on the distribution of other individuals. Compare with clumped dispersion and uniform dispersion.

Clumped Dispersion

A pattern of population distribution in which individuals are aggregated in patches, often due to environmental factors or social interactions, enhancing survival.

Patchy Distribution

A spatial distribution pattern where entities are clustered in several small areas, separated by areas with no or low occurrences of these entities.

Growth Rate

The rate at which an organism or any of its parts increases in size or number over a specific period.