Hough Company Manufactures a Wide Variety of Products

question 6

Multiple Choice

Hough Company manufactures a wide variety of products.A high proportion of its indirect costs are batch-level costs,such as acquiring materials,moving materials within the factory,and setting up machines.Hough uses direct labor hours to assign indirect costs to all of its products.How is this use of a traditional product costing system likely to affect the costs of Hough's high-volume and low-volume products?

• A) All of its products are undercosted.
• B) Its low-volume products are overcosted.
• C) All of its products are overcosted.
• D) Its high-volume products are overcosted.

---

Definitions:

Net Present Value

Net present value is a financial metric that calculates the value of a series of cash flows by discounting them back to their present value using a specific rate.

Fixed Assets

Long-term tangible assets that are used in the operations of a business and not expected to be converted into cash in the short term, like buildings, machinery, and land.

Tax Shield Approach

A method of reducing taxable income through allowable deductions such as depreciation, resulting in lower tax payments.

Operating Cash Flow

The cash generated from normal business operations, indicating a company's ability to generate sufficient revenue to maintain and grow its operations.