A Company's Fixed Interest Expense Is $8,000, Its Income Before

question 139

Multiple Choice

A company's fixed interest expense is $8,000, its income before interest expense and income taxes is $32,000. Its net income is $9,600. The company's times interest earned ratio equals:

• A) 0.25.
• B) 0.30.
• C) 0.83.
• D) 3.33.
• E) 4.0.

---

Definitions:

Predetermined Overhead Rate

A rate calculated at the beginning of a period for assigning overhead cost to products or activities, based on estimated costs and activity levels.

Applied Overhead

The portion of overhead costs allocated to individual jobs or products based on a predetermined rate.

Raw Materials Inventory

The total cost of all the components used to manufacture a product that a company has in stock but has not yet used in production.

Factory Overhead

Factory overhead refers to all the indirect costs associated with manufacturing, excluding direct labor and direct materials, such as utility costs and maintenance expenses.