Question

What is the closest value to Purves Corporation's predetermined overhead rate based on the given data?

a) $10.37
b) $12.10
c) $11.10
d) $11.30

Answer 1

The average fixed cost curve is a downward sloping curve on a graph where as the quantity of output increases, the average fixed cost decreases. Spreading the overhead means that as production increases, the fixed costs are divided over a larger quantity of output, resulting in a lower average fixed cost.

Step-by-step explanation:

The average fixed cost curve is a downward sloping curve on a graph where as the quantity of output increases, the average fixed cost decreases. This is because fixed costs are spread over a larger quantity of output. Spreading the overhead means that as production increases, the fixed costs are divided over a larger quantity of output, resulting in a lower average fixed cost.