The Reason That We Do Not Use an After-Tax Cost

question 88

Multiple Choice

The reason that we do not use an after-tax cost of preferred stock is:

• A)because preferred dividends are paid out of before-tax income.
• B)because most of the investors in preferred stock do not pay tax on the dividends.
• C)because we can only estimate the marginal tax rate of the preferred stockholders.
• D)None of these answers is correct.

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Definitions:

Predetermined Overhead Rate

A calculated rate used to allocate indirect costs to products or services, based on estimated or budgeted overhead costs and an allocation base.

Manufacturing Overhead

All indirect costs related to the manufacturing process, such as utilities and salaries for managers.

Machine-Hours

A measure of the amount of time a machine is operated, used in calculating manufacturing costs and efficiencies.

Cost Of Goods Manufactured

The total cost incurred by a company to produce goods within a specific period, including materials, labor, and overhead.