Using Master-Budget Capacity to Allocate Budgeted Fixed Manufacturing Costs Can

question 105

Multiple Choice

Using master-budget capacity to allocate budgeted fixed manufacturing costs can result in a

• A) stable measure; avoiding the recalculation of unit costs when expected demand levels change
• B) fixed costs spread over available capacity
• C) can result in a downward demand spiral
• D) in fixed overhead costs calculated based on capacity available

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Definitions:

Contract Rate

Rate of interest (based on face value) stated on bond certificate and bond indenture.

Market Rate

The prevailing interest rate available in the marketplace for instruments of similar risk and maturity, also known as the "market interest rate."

Bonds

Financial instruments representing a loan made by an investor to a borrower, often corporate or governmental, that pays periodic interest and the principal at maturity.

Face Value

The amount the corporation must repay to the bondholder at the maturity date.