The Collins Company Uses Predetermined Overhead Rates to Apply Manufacturing

question 8

Multiple Choice

The Collins Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined overhead rate is based on Labour cost in Dept. A and on machine hours in Dept.B. At the beginning of the year, the company made the following estimates: $\begin{array}{lrr}&\text { DeptA}&\text { Depts B}\\ \text { Direct Labour cost } &£65,000&£42,000\\ \text { Manufacturing overhead } &91,000&48,000\\ \text {Direct Labour hours } &8,000&10,000\\ \text { Machine hours } &3,000&12,000\\\end{array}$

What predetermined overhead rates would be used in Dept A and Dept B, respectively?

• A)71% and £4.00
• B)140% and £4.00
• C)140% and £4.80
• D)71% and £4.80

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Definitions:

Price Elasticity

A measure of how much the quantity demanded or supplied of a good changes in response to a change in its price.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a given time period.

Perfectly Inelastic

Refers to a scenario in which the amount demanded or supplied shows no reaction whatsoever to changes in price.

Total Revenue

The total amount of money earned by a business from the sale of its goods and services.