If the Relationship Between Overhead Costs and the Cost Drivers

question 14

Multiple Choice

If the relationship between overhead costs and the cost drivers differs substantially across production departments, the firm should use:

• A) a plantwide overhead rate.
• B) multiple-departmental overhead rates.
• C) actual overhead activity.
• D) machine hours to determine the overhead rate.

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Definitions:

Operating Assets

Assets required for a company's core operations and used to generate income, excluding investment and non-operational assets.

Net Future Operating Cash Inflows

The projection of cash revenues minus the projected cash expenses over a future period, reflecting the net amount of cash a business expects to receive from its operations.

Asset Account

An account on a company's balance sheet that represents the value of ownership interests in assets, including tangible and intangible resources.

Economic Sacrifice Approach

An accounting method focusing on recognizing expenses based on the economic sacrifices made, rather than when cash transactions occur.