Paul Company Used a Predetermined Overhead Rate During the Year

question 21

Multiple Choice

Paul Company used a predetermined overhead rate during the year just completed of $3.50 per direct labor-hour,based on an estimate of 22,000 direct labor-hours to be worked during the year.Actual overhead cost and activity during the year were: $\begin{array}{llcc} \text { Actual manufacturing overhead cost incurred } &\$90,000 \\\text {Actual direct labor-hours worked } &25,000\end{array}$
The underapplied or overapplied overhead for the year would be:

• A)$13,000 underapplied
• B)$10,500 overapplied
• C)$2,500 overapplied
• D)$2,500 underapplied

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Definitions:

Inventory Turnover Ratio

A measure of how efficiently a company turns its inventory into sales by comparing cost of goods sold to average inventory for a period.

Inventories

Inventories are the goods and materials a business holds for the purpose of resale or production in the ordinary course of business.

Cost of Goods Sold

The total cost directly involved in manufacturing or acquiring the products sold by a company during a particular period.

Acid Test Ratio

A liquidity ratio; those assets that are most easily converted to cash are divided by current liabilities to indicate ability to pay off short-term debt. Also called quick ratio.