Avatar Company Uses the Direct Method to Prepare Its Statement

question 68

Multiple Choice

Avatar Company uses the direct method to prepare its statement of cash flows. Please refer to the following financial statement information for the year 2014: On Avatar's statement of cash flows, using the direct method, what amount will be shown for total net cash flow from operating activities?

• A)$213,000 negative
• B)$32,000 positive
• C)$32,000 negative
• D)$245,000 positive

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Definitions:

Predetermined Overhead Rate

A pre-determined rate for distributing overhead expenses to products or job orders, calculated prior to the beginning of the period using projected costs and estimated levels of activity.

Direct Labor-Hour

A direct labor-hour is a unit of measurement for the amount of work performed by employees who are directly involved in the production of goods or services.

Fixed Manufacturing Overhead

The costs that do not vary with the level of production or sales, such as salaries of managers, rent of the factory, and depreciation of manufacturing equipment.

Predetermined Overhead Rate

A pre-determined rate utilized for attributing manufacturing overhead costs to products or job orders, which is established beforehand based on anticipated expenses and levels of activity.