Figure 2 The Management of Chott Industries Predicted That Overhead Cost Would

question 27

Multiple Choice

Figure 2
The management of Chott Industries predicted that overhead cost would total £180,000 for the current year. Management further estimated that under absolutely perfect conditions they could produce 25,000 units. Under efficient conditions, they can produce 23,000 units. The product is expected to appeal to the public for approximately three years during which time Chott expects to sell a total of 60,000 units. Because poor economic conditions are forecast for the upcoming year, Chott plans to produce only 18,000 units.
-Refer to Figure 2. What will Chott's overhead application rate be if Chott uses theoretical capacity?

• A) £10.00
• B) £7.20
• C) £7.83
• D) £9.00

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Definitions:

Full Capacity

The maximum level of output that a company can sustain to make a product or provide a service.

Incremental Revenue

The additional revenue generated from a new business activity or decision.

Incremental Processing Costs

Additional costs incurred when increasing the production volume or when processing further beyond the split-off point.

Sell or Process Further

A decision-making process in cost accounting where a company must determine whether to sell a product as is or continue processing to add value.