Answer:
a. No, the firm needs to take the volatility of short-term rates into account.
Explanation:
Short term interest rates are more volatile than the long term interest rates. If the company chooses to finance its operations solely from short term financing than it will need to incorporate the affect of volatility in the short term interest rates to identify the net returns. The volatility should be calculated with the risk factor and required rate of return of the funds.
When a person or company owes money to creditors. It is the only way creditors feel they will collect what they are owed.
Answer: A. Products were overcosted during the year.
Explanation:
At the budgeted figures of $25,000 fixed overhead costs and the 2,000 units of production, the predetermined fixed overhead rate is:
= 25,000 / 2,000
= $12.50 per unit
However, the company then produces 2,200 units at the same cost of $25,000 making the actual predetermined fixed overhead rate:
= 25,000 / 2,200
= $11.36 per unit
<em>The actual rate is less than the predetermined rate which means that the products had originally be overcosted by being apportioned higher expenses. </em>
