Which of the following is an advantage of a spin-off versus selling a subsidiary and distributing the cash?
A) A spin-off increases the transaction costs associated with selling the subsidiary.
B) Shareholders must immediately pay capital gains taxes versus ordinary income taxes on the value of the spin-off.
C) A spin-off guarantees a lower cost of capital.
D) The spin-off is not taxed as a cash distribution.
Answer: D
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Crinkle Cut Clothes Company manufactures two products CC1 and CC2. Current direct material and direct labor costs are detailed below. Next year the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $338,250. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $28 per hour and the company expects to manufacture 22,000 units of CC1 and 91,000 units of CC2 next year. DirectMaterialper UnitDirectLabor Dollarsper UnitCC1$37.10 $22.40 CC2$25.20 $15.40 Compute the plantwide overhead rate for next year.
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