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:

Gross Profit

The difference between revenue and the cost of goods sold before deducting overhead, payroll, taxes, and interest payments.

Gross Margin

The difference between sales revenue and the cost of goods sold, divided by sales revenue, expressed as a percentage. It represents the proportion of sales revenue that exceeds direct costs.

Gross Profit

The financial metric determining the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.

Retailer

An entity that sells goods or commodities directly to consumers.