A Firm Issues Four-Month Commercial Paper with a $450,000 Face

question 11

Multiple Choice

A firm issues four-month commercial paper with a $450,000 face value and receives $442,000.What is the EAR the firm is paying for these funds?

• A)7.4%
• B)5.4%
• C)5.5%
• D)7.1%
• E)5.3%

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Definitions:

Fixed Factory Overhead

Regular, consistent expenses incurred in the operation of a factory that do not vary with production level, such as rent, salaries, and insurance.

Volume Variance

The difference between the expected volume of production and the actual volume, which impacts the allocation of fixed costs in some costing systems.

Direct Labor Rate Variance

The difference between the actual costs of labor and the expected (or standard) costs, based on the hourly wage rates times the number of hours worked.

Direct Labor Time Variance

The difference between the actual hours worked by employees at the standard rate and the expected hours at the standard rate, for manufacturing a product.