Question

1. Nelson Corporation is using a predetermined overhead rate that was based on estimated total fixed manufacturing overhead of $247,000 and 15,000 direct labor-hours for the period. The company incurred actual total fixed manufacturing overhead of $263,000 and 15,500 total direct labor-hours during the period. The predetermined overhead rate is closest to:

                        a. $16.97

                        b. $15.94

                        c. $17.53

                        d. $16.47

                       

2.   If Miller Corp. increases its sales volume and nothing else changes, then the:

1. contribution margin ratio will increase.
2. margin of safety will increase.
3. break-even point will decrease.
4. net operating income will decrease.

Answer 1

Question 1

Correct answer------------(d) $16.47

Working

(A)	Estimated Manufacturing Overheads	$ 247,000
(B)	Estimated Direct-labor hour	15,000
C= (A/B)	Predetermined Overhead rate	$            16.47	Per Direct-labor hour

Question 2

Correct answer------------margin of safety will increase.

Increase in sales volume increases net income. It does not effect breakeven sales. If breakeven sales remain same then margin of safety increase when actual sales increase.