Ryan's Paints Allocates Overhead Based on Machine Hours

question 86

Multiple Choice

Ryan's Paints allocates overhead based on machine hours.Selected data for the most recent year follow.

The estimates were made as of the beginning of the year,while the actual results were for the entire year.
The manufacturing overhead for the year would have been

• A)$10,000 overallocated.
• B)$10,000 underallocated.
• C)$40,000 overallocated.
• D)$40,000 underallocated.

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Definitions:

Adverse Selection

A situation in which asymmetric information leads to the market being dominated by inferior products or by participants who are at a disadvantage.

Moral Hazard

A situation where one party in a transaction has the opportunity to take risks because the costs that those risks entail will not be borne by that party.

Portfolio Risk

The variability of returns from a portfolio of investments.

Utility Function

A mathematical representation that ranks preferences or satisfaction levels individuals derive from consuming goods and services.