The Government of Your State Wants Gigantic Software Corp

question 42

Multiple Choice

The government of your state wants Gigantic Software Corp., which is a natural monopoly, to stay in business yet still produce where price equals marginal cost.The government might choose to

• A)set a price ceiling 10 percent lower than its previous level
• B)impose a tax on the company for each dollar of sales
• C)establish regulations that raise the company's cost of doing business
• D)provide a subsidy to the company to cover the loss and ensure a normal profit
• E)replace the company's top management

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Definitions:

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to allocate manufacturing overhead costs to individual units of production.

Actual Overhead

The actual costs incurred for indirect materials, indirect labor, and other expenses that cannot be directly traced to products or services.

Direct Labor Cost

The total cost of all the labor directly involved in the production of goods or services, not including indirect expenses like administration.

Direct Labor Cost

The expense incurred from employing workers who directly work on a company's products or services, which can be directly accounted for.