Answer:
Net cashflow from operating activities =$7,726
Explanation:
The net cash flow from operating activities would be the sales revenue less net purchases.
The net purchases = total purchases - less the purchases returns
12,500 - 1,200 =11300
The amount due on the purchases less discount
The term 2/10, n/30 implies that the company would get a discount of 2% should it pay within 10 days other it would pay the gross amount due at later date but on or before the 30th day.
Payment due less discount = 98%× 11300 = 11,074
Net cashflow from operating activities = Net sales - purchases
=18,800 - 11,074 = 7,726
Net cashflow from operating activities =7,726
Bi-Lo Traders is considering a project that will produce sales of $41,350 and have costs of $23,900. Taxes will be $4,200 and the depreciation expense will be $2,425. An initial cash outlay of $1,950 is required for net working capital. What is the project's operating cash flow
Answer:
$13,250
Explanation:
Bi-Lo traders is considering a project that will produce sales of $41,350 and costs of $23,900
Taxes will be $4,200
Depreciation expense will be $2,425
Therefore the project operating cash flow can be calculated as follows
= $41,350-$23,900-$4,200
= $13,250
Hence the operating cash flow is $13,250
An investor in a limited partnership generating passive losses can offset these against:___________.
A. REIT dividends
B. income generated from direct investments in real estate
C. dividends received from blue chip corporations
D. capital gains generated from the sale of securities
Answer:
B. income generated from direct investments in real estate
Explanation:
Given that passive losses can only be offset by passive income, then from the available options, REIT otherwise known as Real Estate Investment Trust, the dividend is not categorized as passive income by the Internal Revenue Service, hence, option A is wrong.
Also, dividends received from blue-chip corporations is not a passive income, hence, option C is wrong.
At the same time, option D which is capital gains generated from the sale of securities is not a passive income either.
Therefore, option B, which is income generated from direct investments in real estate is a perfect example of passive income. Hence, the right answer.
Which of the following statements always apply to corporations? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) Unlimited liability unchecked Limited life unanswered Ownership can be transferred without affecting operations checked Managers can be fired with no effect on ownership checked
Answer:
Ownership can be transferred without affecting operations. Managers can be fired with no effect on ownershipExplanation:
Corporations usually have their shares traded without it affecting them. This is because the shareholders are usually not involved in the running of the business and even if they were, their shares have nothing to do with business operations. If they sell them, business goes on as usual.
Likewise management can be retrenched without any effect on the shareholders because the two sectors of the business are not interrelated such that a manager being fired will impact ownership. Company will simply replace the position and continue operations.
C 0
a.
Hank is a salaried plus commission employee. Hank has a monthly salary of $2.500 and earns 5.5% commission on all
sales. Which of the following expressions represents Hank's total earnings in one month if he has $6,300 in sales?
2,500 + (0.055)(6,300)
b. 2,500 + (5.5)(6,300)
c. (2,500) (5.5) + 6,300
d. (2,500) (0.055) + 6,300
Answer:
The answer is A
2,500 + (0.055)(6,300)
Explanation:
Answer:
A
Explanation:
What is the essential concept in understanding compound interest?
Answer:
Explanation:
The main concept that needs to be understood is the idea of getting paid interest on money that you made from interest payments. This is technically the entire system of compound interest, you invest money into something that provides such interest. You get paid a percentage interest on that money, you then reinvest that payment back into the same investment. Now your next interest payment will be more due to the reinvested amount, and so on. This drastically increases the amount of money that is made over time.
Little Books Inc. recently reported $3 million of net income. Its EBIT was $6 million, and its tax rate was 40%. What was its interest expense? [Hint: Write out the headings for an income statement, and fill in the known values. Then divide $3 million of net income by to find the pretax income. The difference between EBIT and taxable income must be interest expense. Use this same procedure to complete similar problems.]
Answer: Interest expense = $1 million
Explanation:
Net income is given as
Net Income = Pretax income x (1-Tax rate )
Therefore
Pretax income= Net income / ( 1- tax rate )
= 3/(1-0.4) = 5 million
But ,
EBIT - Interest = Pretax income
Interest expense = EBIT - Pretax Income
= 6 million - 5 million =$ I million
Company X has a higher degree of financial risk than Company Y. Company X can offset this by lowering its operating leverage. True or false? Firm A has more business risk than Firm B, but they both have the same total risk. Which of the following statements must be true? a. In order to offset its higher business risk, Firm A will increase its operating leverage so that its total risk is the same as Firm B's. b. Because Firm A has more business risk than Firm B, its debt ratio will be greater than Firm B's. c. Because Firm B has less business risk than Firm A, its debt ratio will be lower than Firm A's. d. None of the statements above are true. The correct response is .
Answer:
Trued. None of the statements above are true.Explanation:
1. Financial risk refers to the risk of defaulting on debt obligations by a company. Company X can indeed offset this by lowering its operating leverage because a high operating level means that the company's cashflows are more unpredictable which means there is uncertainty and uncertainty is risky.
If the Operating Leverage is lowered, there is less risk.
2. Option A is wrong because if Firm A increases their operating leverage its risk will become even higher therefore making its total risk higher than Firm B.
Option B is wrong because the debt ratio relates to financial risk not business risk. Option C is wrong for the same reason.
None of the statements are therefore true.
Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut. a. On a single figure, draw budget lines for trading with Friday and for trading with Kwame. (Put coconuts on the vertical axis.) b. What is the slope of the budget line from trading with Friday? c. What is the slope of the budget line from trading with Kwame? d. Which budget line features a larger set of attainable combinations of coconuts and fish? e. If you are going to trade coconuts for fish, would you rather trade with Friday or Kwame?
Answer:
a) see attached graph
b) slope = -1/2 = -0.5
c) slope = -1/3 = -.033
d) trading with Kwame (green line)
e) you should trade with Kwame since you can obtain more fish (up to 60 in total)
A desert island possessing exactly 20 coconuts is a different situation.
a) the graph observation.
b) slope = -1/2 = -0.5
c) slope = -1/3 = -.033
d) Friday and Kwame's budget lines have the same number of combinations of coconuts and fish. Kwame was the green line.
e) Kwame can obtain more fish as compared to Friday.
What is an island?
An island is any piece of land that is smaller than a continent and completely encircled by water. Islands can appear in rivers, lakes, seas, or oceans. The archipelago is the term for a collection of islands. The island is on the side of the ocean. The island is the body of land and the surrounding water.
A. ⇔ That for every coconut you give, Friday will give you 2 fish.
number of fish = 2 × the number of coconutsnumber of coconuts = number of fish / 2Fish (horizontal axis) Coconuts (vertical axis)
0 0
2 1
4 2
6 3
40 20
The range is from 0 to 20 coconuts, limiting the number of fish to even numbers between 0 and 40.
⇔ For every coconut you give, Kwame will give you 3 fish. Hence:
number of fish = 3 × the number of coconutsnumber of coconuts = number of fish / 3Fish (horizontal axis) Coconuts (vertical axis)
0 0
3 1
6 2
9 3
60 20
The range is from 0 to 20 coconuts, limiting the number of fish to even numbers between 0 and 60.
B. The slope is the trading rate:
slope = rise / run = Δy / Δx = 1 coconut / 2 fish
slope = -1/2 = -0.5
It simply means that will give 1 coconut per every 2 fish you receive from Friday.
C. Again, the slope is the trading rate:
slope = rise / run = Δy / Δx = 1 coconut / 3 fish
slope = -1/3 = -.033
It means that you will give 1 coconut per 3 fish that you receive from Kwame.
D. Friday and Kwame budget lines have the same number of combinations of coconuts and fish.
For Friday ratio is:
(0,0), (2,1), (4,2), (6, 3), ..... (40, 20), which are 21 combinations.For Kwame ratio is:
(0,0), (3,1), (6, 2), (9, 3), . . . (60, 20), which also are 21 combinations.E. Kwame can obtain more fish as compared to Friday.
As a result, the desert island is exactly 20 coconuts.
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Professor’s Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $74,000 at age 65, the firm will pay the retiring professor $450 a month until death. If the professor’s remaining life expectancy is 15 years, what is the monthly interest rate on this annuity?
Answer: 0.10%
Explanation:
The following can be gotten from the question:
n = 15 years
We change it to months. Thus will be:
= 15 × 12
= 180
Present value of an annuity :
= A × {1- (1 +r ) -n ]/r}
74000 = 450 × [ 1- (1 +r) - 180]/r
r= 0.10%
Therefore, the monthly interest rate is 0.10%.
Jack performs maintenance on the manufacturing machinery, and Charlie performs maintenance on the office computers. Would their salaries be classified differently? A : Yes, Jack’s salary would be classified as direct labor, whereas Charlie’s salary would be classified as indirect labor. B : Yes, Jack’s salary would be classified as a product cost, whereas Charlie’s salary would be classified as a period cost. C : No, both salaries would be classified as indirect labor. D : No, both salaries would be classified as a product cost.
Answer:
B : Yes, Jack’s salary would be classified as a product cost, whereas Charlie’s salary would be classified as a period cost.
Explanation:
In determining the product cost, Jack's salary which forms part of the manufacturing overhead will be included in the total manufacturing costs whereas Charlie's salary will be regarded as a period cost. This makes option B the correct choice. The maintenance costs on manufacturing machinery and office computers are classified differently in a manufacturing setting because Jack's maintenance affects manufacturing indirectly while Charlie's maintenance affects the office administration directly.
Which factor will not shift the labor supply curve?A. a change in preferences and social normsB. changes in wealthC. changes in opportunitiesD. a change in the wage rate
Answer:
D. a change in the wage rate
Explanation:
A change in the wage rate would lead to a movement along the supply curve.
An increase in wages would increase the quantity supplied. This would lead to a movement up along the supply curve.
A decrease in wages would decrease the supply of labour. This would lead to a movement down along the supply curve
Last year, the country of Valahia reported that it had a favorable balance of trade while importing $21 billion worth of goods. This suggests that Valahia: a. Imported only inexpensive goods and exported expensive goods. b. Exported less than $21 billion worth of goods. c. Exported more than $21 billion worth of goods. d. Exported $11 billion worth of goods.
Answer:
C
Explanation:
Balance of trade is the difference between a country's export and import
Balance of trade = export - import
Balance of trade is favourable if export exceeds import
If imports was $21 billion, it implies that export was greater than $21 billion if balance of trade is favourable
The firm's findings are best described as the
The United Nations hires a global firm to study digital
communications around the world. Here is what that firm
wrote based on its research.
Many people in the world have little experience with
computers, and only one-fifth of the world's population
has Internet access. The differences in the ability to use
this technology make it challenging to reach people from
around the world.
digital divide.
O inequality divide.
O Internet divide.
computer divide.
Answer:digital divide.
Explanation:
Calculate and Use Overhead Rate Chipman Corporation expects to incur $300,000 of factory overhead and $500,000 of general and administrative costs next year. Direct labor costs at $25 per hour are expected to total $500,000. If factory overhead is to be applied per direct labor hour, how much overhead will be applied to a job incurring 100 hours of direct labor
Answer:
$1,500
Explanation:
Given that;
Factory overhead = $300,000
General and administrative costs= $500,000
Direct labor cost = $500,000
Total direct labor hours = $500,000 /$25 per hour
= 20,000 direct labor hours
Factory overheads per direct labor hours = $300,000 / 20,000
= $15 per direct labor hour
Therefore, Overheads applied to job will be;
= 100 direct labor hours × $15 per direct labor hour
= $1,500
Overhead applied is $1,500
Service cost is: Multiple Choice Calculated by multiplying the beginning balance in plan assets by the expected rate of return. Equal to the increase in the projected benefit obligation resulting from benefits earned by employees in the current period. Calculated by multiplying the beginning balance of the projected benefit obligation by the interest rate. Equal to the increase or decrease in the projected benefit obligation resulting from the initiation of a plan or an amendment to a plan.
Answer: Equal to the increase in the projected benefit obligation resulting from benefits earned by employees in the current period
Explanation:
Service cost is equal to the increase in the projected benefit obligation resulting from benefits earned by employees in the current period.
Service cost is the amount of money that is out aside by an employer every year in order to cover for the pension of the workers when they retire. It is the expense when someone else does a task for an economic entity.
Recently, the owner of Martha's Wares encountered severe legal problems and is trying to sell her business. The company built a building at a cost of $1,240,000 that is currently appraised at $1,440,000. The equipment originally cost $720,000 and is currently valued at $467,000. The inventory is valued on the balance sheet at $410,000 but has a market value of only one-half of that amount. The owner expects to collect 98 percent of the $225,200 in accounts receivable. The firm has $10,500 in cash and owes a total of $1,440,000. The legal problems are personal and unrelated to the actual business. What is the market value of this firm?
Answer:
Net market value of firm = $903,196
Explanation:
Items to determine the Market value of the firm are as below
Item Amount
Current value of building $1,440,000
Current value of equipment $467,000
Market value of inventory $205,000
Cash in hand $10,500
98% of debtors $220,696
Less: Owings -$1,440,000
Net market value of firm $903,196
Suppose you need $1 million dollars to start your dream business. Describe two ways you would generate the funds needed to start such a business. Next, discuss any risks or benefits you should be aware of when gathering these funds. Provide examples to support your response.
Answer:
Following are the two ways to generate the fund and start a new business:
Explanation:
Venture capitalist- It would be a type of equity finance in which venture capitalists will in particular aim for just a considerable amount of interest throughout the new startup. It enables you to get control of the mangers and try to get the funds from it by providing venture capital, that is diluting the interest in exchange for the funds necessary to begin the company. It will also add the knowledge on different issues, which is associated with this form of financing. It also ventures capitalists tend to intervene with leadership and try to control their company to harm the developer. It may also aim to manage the capital via a bank loan, in which it seeking to arrange funds by the use of cash, and these credits will have set loan repayment responsibilities even if it gains no profit, it is extremely risky and also has lower costs, because interest costs are mostly taxable income in design. This problem with both the taking of loans is because it has a fixed obligation and also poses a business liquidity position.g Given the information below: ASSETS LIABILITIES Cash and cash equivalents $10,000 Current debts for the year $15,000 Other liquid assets $20,000 Other total liabilities $200,000 Investments $250,000 Fixed assets $300,000 INCOME DATA Annual after-tax income $75,000 Annual spending $67,000 The solvency ratio is closest to: A. 63% B. 33% C. 4% D. none of the above
Answer:
The solvency ratio is closest to: B. 33%.
Explanation:
The solvency ratio = After tax Net Operating Income ÷ Total Debt
Thus,
The solvency ratio = $75,000 ÷ ($15,000 + $200,000)
= 35.88%
Therefore this is closest to B. 33%.
The Work in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $6,884 debit balance after all posting is completed. The cost sheet of the one job still in process shows direct material cost of $2,600 and direct labor cost of $1,400. Therefore, the company's overhead application rate is:______
a. 111% of direct labor cost.
b. 186% of direct labor cost.
c. 206% of direct labor cost.
d. 49% of direct labor cost.
e. 54% of direct labor cost.
Answer:
d. 49% of direct labor cost.
Explanation:
Overhead Rate based on direct labor has cost of $6,884
Direct material costs $2,600
Direct labor costs $1,400
Overhead Cost based on direct labor cost = Direct Labor Costs * Percentage Rate
Percentage Rate= Overhead Cost / Direct Labor Costs
Percentage Rate = $6,884 /$1,400 = 4.917
This can be rechecked by multiplying the direct labor cost with the given rate.
So multiplying $1400*4.917= $6,884 which is the required amount.
Haack Inc. is a merchandising company. Last month the company's cost of goods sold was $69,800. The company's beginning merchandise inventory was $13,200 and its ending merchandise inventory was $29,300. What was the total amount of the company's merchandise purchases for the month?
Answer:
cost of goods purchased= $85,900
Explanation:
Giving the following information:
Last month the company's cost of goods sold was $69,800.
The company's beginning merchandise inventory was $13,200 and its ending merchandise inventory was $29,300.
To calculate the purchases, we need to use the following formula:
COGS= beginning finished inventory + cost of goods purchased - ending finished inventory
69,800 = 13,200 + cost of goods purchased - 29,300
69,800 - 13,200 + 29,300= cost of goods purchased
cost of goods purchased= $85,900
Which two terms are associated directly with the way an annuity is funded?
A) Renewable or convertible.
B) Single payment or periodic payments.
C) Increasing or decreasing.
D) Level of flexible.
Answer:
D
Explanation:
Annuities can either be paid for as a lump sum (Single payment) or periodic payment.
Periodic payments can wither be fixed or variable
fixed payment is when a fixed amount is payed at a particular year. For example, $400 is paid at the beginning of every year.
Variable payment is when there is no structure in the amount or time the annuity is funded
1. Revenues = $27,000; Expenses = $18,000; Net income = ____________. 2. Increase in stockholders' equity = $17,000; Issuance of common stock = $11,000; Net income = $12,000; Dividends = ____________. 3. Assets = $24,000; Stockholders' equity = $15,000; Liabilities = ____________. 4. Total change in cash = $26,000; Net operating cash flows = $34,000; Net investing cash flows = ($17,000); Net financing cash flows = ____________.
Answer:
1. $9,000
2. $6,000
3. $9,000
4. -$25,000
Explanation:
Here, we are expected to calculate values for the terms using the values in the preceding term for each question;
1. Net Income
Mathematically, net income = Revenues - Expenses = 27,000 - 18,000 = $9,000
2. Dividends
Mathematically;
Change in stock holder’s equity = Issuance of common stock + Net Income - Dividends
Hence;
Dividends = Net Income + Issuance of Common Stock - Dividends
Dividends = 12,000 + 11,000 - 17,000 = 23,000 -17,000 = $6,000
3. Assets
Mathematically ;
Assets = Liabilities + Stockholder’s Equity
Thus;
Liabilities = Assets - Stockholder’s Equity
Liabilities = 24,000 -15,000 = $9,000
4. Net Operating Cash Flows;
Mathematically;
Net Financing cash flows = Total change in cash - ( Net operating cash flows + Net Investing Cash flows)
Net Financing cash flows = $26,000 - (34,000 + 17,000)
Net financing cash flows = 26,000 - 17,000 -34,000 = -$25,000
Provision for income taxes" is the label for income tax expense?a. True b. False
Answer: True
Explanation:
The Provision for income taxes is the account that records the amount that the company expects that it will pay in taxes for the relevant period.
This balance is arrived at after the net income is derived and then adjusted for the various differences be they permanent or temporary. After that is done the relevant tax rate is applied on the balance and this will be the amount that the company will expect as pay for income tax expense.
Adison Winery had beginning long-term debt of $41,436 and ending long-term debt of $46,883. The beginning and ending total debt balances were $51,283 and $56,480, respectively. The company paid interest of $4,471 during the year. What was the company's cash flow to creditors
Answer:
-$976
Explanation:
Adison winery has beginning long term debt of $41,436 and ending long term debt of $46,883
The beginning and ending total balance were $51,283 and $56,480
The company paid an interest is $4,471
Therefore the company cash flow to creditors can be calculated as follows
= $4,471-($46,883-$41,436)
= $4,471 - $5,447
= -$976
Hence the operating cash flow to the creditors is -$976
During this stage of résumé review, employers use the résumé to guide interview questions: a. Stage 1 b. Stage 2 C. Stage 3
Answer:
the correct option is C
Explanation:
good luck!
During this stage of resume review, employers use the resume to guide interview questions as Stage 3. Thus, option (c) is correct.
What is resume?
The term “resume” is a formal document to present a job applicant with mention of specific details. The resume is a one- or two-page summary of a person's details, such as education, skills, and work experience.
There are divided into four categories of resumes, such as functional resume, combination resume, chronological resume, and targeted resume.
During the requirements process, resume review is divided into three stages, such as stage one: technology check; stage two: human screening; and stage three: interviewing.
A supervisor or hiring manager will now place the job applicant's resume in the “interview pile” for further consideration. This is the third stage of the resume evaluation process.
Therefore, option (c) is correct.
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. Two options are under consideration for a machine that makes hard candy. Machine A has fixed cost of 8,901 and a variable cost of 0.45 per pound. Machine B has a fixed cost of 7,599 and a variable cost of 0.52 per pound. At what production amount (pounds) is the total cost of each machine equal?
Answer:
At 18,600 pounds, cost of both the machines would be equal
Explanation:
At Indifference point of production amount (pounds), the total cost of each machine will be equal .
Indifference Point is calculated as: Change in Fixed Costs/Change in Variable Costs
Indifference Point = (8901 - 7599) / (0.52 - 0.45)
= 1302 / 0.07
= 18,600 pounds
At 18,600 pounds, cost of both the machines would be equal
Which one of the following is true regarding the descriptive approach to data-driven decision making?Select one:A. It is applied when an insurer or risk manager has a specific problem to solve.B. It is exemplified by a computer making an underwriting decision and issuing a price quote.C. It is applied by insurers or risk managers continually beyond their specific problem.D. It can be used repeatedly to provide information for data-driven decision making by humans.
Answer:
A. It is applied when an insurer or risk manager has a specific problem to solve.
Explanation:
The descriptive approach to decision-making based on data is an approach that uses the provision of data that has already occurred in an organization so that there is a statistical understanding of the facts and that decision-making is carried out more effectively and based on evidence.
This approach makes it possible to solve specific problems by understanding the real situation of an organization financially and of all variables such as sales, production, operation, etc. that can be analyzed in a statistical way.
For each of the following shocks, describe how monetary policymakers would respond (if at all) to stabilize economic activity. Assume the economy starts at a longrun equilibrium. a. Consumers reduce autonomous consumption. b. Financial frictions decrease. c. Government spending increases. d. Taxes increase. e. The domestic currency appreciates.
Answer:
A shock in an economy is any event that is not predictable that may have a positive or negative effect on an economy.
Explanation:
a. Consumers reduce autonomous consumption
when this happens, policy makers would go for those policies that would ease monetary policy. aggregate demand would fall. interest rate would have to be reduced to bring about stability in economic activities.
b. financial friction decrease
when there is a decrease in financial friction, aggregate demand would be caused to go up. policy makers would have to tighten monetary policy by raising interest rate so as to bring about economic stability.
c. increase in government spending
this causes another increase in aggregate demand. to stabilize economy, policy makers would have to go for policies that favor autonomous tightening
d. tax increase
when taxes increase, spending decreases and the result is a reduced aggregate demand. what policy makers would go for would be autonomous easing of the policy to bring about economic stability.
e. domestic currency appreciation
this would cause imports to increase and exports to reduce. net exports would fall as would aggregate demand. policy makers would go for autonomous easing of the policy for economic stability
At December 31, 2021 and 2020, P Co. had 50,000 shares of common stock and 5,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2021 or 2020. Net income for 2021 was $500,000. For 2021, basic earnings per common share amounted to:
Answer:
Earning per for Common Share = $9.50
Explanation:
Earning per Common Share = Earning Attributable to Common Shareholders / No. of Common Share
No. of Common Share = 50,000
Where Earning Attributable to Common Shareholders = Net Income - Dividend to Preferred Stock = $500,000 - (5,000 shares * 100 * 5%) = $475,000
Since the preferred stocks are cumulative, dividend to these stock will be deducted even if it is not declared.
Earning per for Common Share = $475,000 / 50,000 shares
Earning per for Common Share = $9.50.
Two positions have normally been taken with respect to the recording of fixed manufacturing overhead as an element of the cost of plant assets constructed by a company for its own use: (a) It should be excluded completely. (b) It should be included at the same rate as is charged to normal operations. What are the circumstances or rationale that support or deny the application of these methods
Answer:
Recording fixed manufacturing overhead as element of the cost of plant assets constructed by a company for its own use:
a) When to exclude completely: During periods of low production activity, capitalization of fixed overhead costs would reduce the amount assigned to operational activities. This implies that profits will be overstated in some periods and understated in others.
b) When to include at the same rate as is charged to normal operations: To avoid misstatement of both plant assets and finished goods, it is important to allocate overhead costs at the same rate to plant asset construction as is done for normal operations.
Explanation:
Much of the fixed manufacturing overhead will be the depreciation costs for factory building and equipment. Sometimes, companies construct their plant assets internally. The problem arises when deciding whether to allocate fixed manufacturing overhead costs or not and when to allocate. The decision requires some thinking to decide when it is appropriate.
