Multiple (Departmental)manufacturing Overhead Rates Are Considered Preferable to a Single

question 6

Multiple Choice

Multiple (departmental) manufacturing overhead rates are considered preferable to a single (plantwide) overhead rate when: (CMA adapted)

• A) manufacturing is limited to a single product flowing through identical departments in a fixed sequence.
• B) various products are manufactured that do not pass through the same departments or use the same manufacturing techniques.
• C) individual cost drivers cannot accurately be determined with respect to cause-and-effect relationships.
• D) the single or plantwide rate is related to several identified cost drivers.

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Definitions:

Free Cash Flow

The net cash flow a business produces following the deduction of operational expenses and investment in maintaining its fixed assets.

Interest Expense

The cost incurred by an entity for borrowed funds, typically reported on the income statement.

Net Debt

A financial metric that calculates a company's overall debt situation by subtracting its total cash and equivalent assets from its total short-term and long-term debt.

Cost of Equity

The rate of return required by a company's shareholders for investing in the company's equity.