Deck 13: Accounting for Overhead Costs

Question 1

The variable-costing income statement separates costs into manufacturing and nonmanufacturing categories.

Answer 1

False

Question 2

When the amount of overhead applied to the product exceeds the amount incurred by the
department, the difference is called overapplied overhead.

Answer 2

True

Question 3

There should be a strong cause?and?effect relationship between the factory overhead incurred and the cost driver chosen for its application.

Answer 3

True

Question 4

In determining the budgeted overhead application rate, the actual amount of the cost driver is used as the numerator.

Question 5

The most widely used approach in disposing of an overhead variance is proration.

Question 6

The most common contributor to a variance between actual overhead and applied overhead is by operating at a different level of volume than the level used as a denominator in calculating the budgeted overhead rate.

Question 7

Actual product cost may be distorted by fluctuations in production volume.

Question 8

Direct-labor hours rather than direct-labor cost usually drive fringe-benefit costs such as pensions and payroll taxes.

Question 9

The immediate write-off method subtracts the underapplied overhead amount from Cost of Goods Sold.

Question 10

A company can increase the accuracy of its product cost information by converting some factory-overhead costs from indirect to direct costs.

Question 11

Normally, 80% of the cost drivers drive 50% of the overhead costs.

Question 12

Accountants use actual overhead rates to apply overhead to jobs as they are completed.

Question 13

The proration method of disposing of overhead variances prorates the variance among three accounts including Direct?Materials Inventory, WIP Inventory, and Finished Goods
Inventory.

Question 14

Total overhead applied is the result of multiplying the actual amount of the cost driver by
the budgeted overhead rate.

Question 15

Budgeted factory-overhead rate = total budgeted factory overhead / total actual amount of the cost driver.

Question 16

In actual practice, prorating is done only when it would materially affect inventory valuations.

Question 17

The variable-costing income statement uses the contribution-approach format.

Question 18

The proration method assigns underapplied overhead and overapplied overhead amounts based on the beginning-of-year account balances of WIP, Finished Goods, and Cost of Goods Sold.

Question 19

Variable costing is more important for external reporting than for internal decision making.

Question 20

No one cost driver is right for all situations.

Question 21

Fixed manufacturing overhead is excluded from the cost of products under absorption costing.

Question 22

If a company uses the variable-costing approach, a manager might be tempted to produce unneeded units just to increase reported operating income.

Question 23

There is no production-volume variance only when expected production volume equals actual production volume.

Question 24

Gross margin appears in a variable-costing income statement.

Question 25

An unfavorable production-volume variance decreases the manufacturing costs shown on the income statement.

Question 26

When sales exceed production, variable-costing income is greater than absorption-costing income.

Question 27

The absorption-costing method has fixed factory overhead appearing in only cost of goods sold.

Question 28

When actual volume is more than expected volume, fixed overhead is underapplied.

Question 29

A production-volume variance is calculated as the applied volume minus the actual volume multiplied by the actual overhead rate.

Question 30

It is possible for variable overhead to have a production-volume variance.

Question 31

The variable-costing method does not include fixed overhead in a product's cost.

Question 32

Most companies consider production-volume variances to be beyond immediate control.

Question 33

Any difference in variable-costing and absorption-costing operating income can be explained by multiplying the fixed-overhead product-costing rate by the change in the total units in the beginning and ending inventories.

Question 34

Production-volume variance = applied fixed overhead - budgeted fixed overhead.

Question 35

The variable-costing method regards fixed manufacturing costs as expenses in the period they are incurred.

Question 36

Absorption costing is more widely used than variable costing.

Question 37

The production-volume variance measures the difference between applied and budgeted fixed overhead.

Question 38

Absorption-costing income is not affected by production volume.

Question 39

Underapplied and overapplied fixed overhead has two components: 1) a production-volume variance, and 2) a fixed-overhead flexible-budget variance.

Question 40

In an absorption-costing statement, revenue less variable manufacturing cost is the gross margin.

Question 41

All variances other than the production-volume variance are essentially flexible-budget variances.

Question 42

Roth Company had the following data available: $$\begin{array} { l r } \text { B eginring direct-materials inventory } & \$ 26,000 \\\text { Beginning WIP Inventory } & 64,000 \\\text { Beginning finished-goods inventory } & 58,000 \\\text { Direct materials purchased on account } & 148,000 \\\text { Direct materials requisitioned } & 82,000 \\\text { Direct-labor cost incurred } & 130,000 \\\text { Factory overhead incurred } & 146,000 \\\text { Cost of goods completed } & 292,000 \\\text { Cost of goods sold } & 256,000 \\\text { Overhead applicati on rate } & 150 \% \\\quad \text { as a percent of direct-labor cost) } &\end{array}$$ The ending inventory of work in process is _____.

A)$438,000
B)$179,000
C)$130,000
D)$422,000

Question 43

Phillies Company had the following information: $\begin{array}{l}\text { Budgeted variable factory overhead } & \$ 66,000 \\\text { Budgeted fixed factory overhead } & \$ 46,500 \\& \\\text { Actual variable factory overhead } & \$ 77,500 \\\text { Actual fixed factory overhead } & \$ 62,500\\\\\text { Budgeted cost-driver activity levels: }\\\text { Direct-labor hours } & 30,000 \\\text { Direct-labor costs } & \$ 160,000 \\\text { Machine hours } & 60,000 \\\text { Production setups } & 15,000\\\\\text { Actual cost-driver activity levels: }\\\\\text { Direct-labor hours } & 31,500 \\\text { Direct-labor costs } & \$ 165,600 \\\text { Machine hours } & 56,190 \\\text { Production setups } & 14,280\end{array}$
The budgeted factory-overhead rate using direct-labor costs as the cost driver is _____.

A)68%
B)70.3%
C)80%
D)72.5%

Question 44

Eddie Company had the following data available: $\begin{array}{ll}\text { Direct materials purchased on account } & \$ 74,000 \\\text { Direct materials requisiti oned } & \$ 41,000 \\\text { Direct-labor cost incurred } & \$ 65,000 \\\text { Factory overhead incurred } & \$ 77,000 \\\text { Factory overhead applied } & \$ 85,000\end{array}$ Work in process is increased by _____.

A)$334,250
B)$191,000
C)$179,000
D)$139,000

Question 45

The entry to record the application of overhead includes a _____.

A)debit to Factory Department Overhead Control
B)debit to WIP Inventory
C)credit to Cost of Goods Sold
D)credit to Accumulated Depreciation

Question 46

Giants Company had the following information: $$\begin{array} { l r } \text { Budgeted factory overhead } & \$ 80,000 \\\text { Actual factory overhead } & \$ 82,000 \\\text { Budgeted: Machine hours } & 40,000 \\\text { Actual: Machine hours } & 39,500\end{array}$$ The overhead applied for a company that uses 10,000 machine hours is _____.

A)$20,000
B)$20,250
C)$20,500
D)$28,750

Question 47

Dodgers Company had the following information: $$\begin{array} { l r } \text { Budgeted factory overhead } & \$ 90,000 \\\text { Actual factory overhead } & \$ 82,000 \\\text { Budgeted: Machine hours } & 40,000 \\\text { Actual: Machine hours } & 35,500\end{array}$$ The budgeted factory-overhead rate using machine hours as the cost driver is _____.

A)$2.250
B)$2.025
C)$2.050
D)$2.875

Question 48

Carey Company had the following data available: $$\begin{array} { l r } \text { B eginring direct-materials inventory } & \$ 26,000 \\\text { B eginning WIP Inventory } & 64,000 \\\text { B eginning finished-goods inventory } & 58,000 \\\text { Direct materials purchased on account } & 148,000 \\\text { Direct materials requisiti oned } & 82,000 \\\text { Direct-labor cost incurred } & 130,000 \\\text { Factory overhead incurred } & 146,000 \\\text { Cost of goods completed } & 292,000 \\\text { Cost of goods sold } & 300,000 \\\text { Overhead applicati on rate } & 150 \% \\\quad \text { as a percent of direct-labor cost) } &\end{array}$$ The ending inventory of finished goods is _____.

A)$58,000
B)$36,000
C)$50,000
D)$292,000

Question 49

USC Company had the following information: $$\begin{array} { l l } \text { Budgeted factory overhead } & \$ 90,000 \\\text { Actual factory overhead } & \$ 80,000 \\\text { Budgeted: Direct-labor hours } & 20,000 \\\text { Actual: Direct-labor hours } & 21,000\end{array}$$ The budgeted factory-overhead rate using direct-labor hours as the cost driver is _____.

A)$4.00
B)$3.57
C)$4.50
D)$3.81

Question 50

The budgeted factory-overhead rate is computed as _____.

A)actual factory overhead / actual production in units
B)actual factory overhead / actual cost driver activity
C)budgeted total overhead / actual cost driver activity
D)budgeted total overhead / budgeted cost driver

Question 51

Padres Company had the following information: $$\begin{array} { l r } \text { Budgeted factory overhead } & \$ 78,000 \\\text { Actual factory overhead } & \$ 80,000 \\\text { Budgeted: Production setups } & 12,000 \\\text { Actual: Production setups } & 12,500\end{array}$$ The journal entry to apply overhead to a job requiring 4,500 setups includes a _____.

A)debit to Factory Overhead Control for $31,296
B)credit to Factory Overhead Control for $29,250
C)debit to WIP Inventory for $31,296
D)credit to Cost of Goods Sold for $29,250

Question 52

Rams Company had the following information: $$\begin{array} { l r } \text { Budgeted factory overhead } & \$ 90,000 \\\text { Actual factory overhead } & \$ 107,000 \\\text { Budgeted: Direct-labor costs } & \$ 100,000 \\\text { Actual: Direct-labor costs } & \$ 107,000\end{array}$$ The budgeted factory-overhead rate using direct-labor costs as the cost driver is _____.

A)$.81
B)$.90
C)$1.00
D)$1.05

Question 53

The production-volume variance serves primarily a product costing purpose.

Question 54

Duke Company had the following data available: $\begin{array}{ll}\text { Direct materials purchased on account } & \$ 74,000 \\\text { Direct materi al s requisitioned } & \$ 44,000 \\\text { Payment for direct materials } & \$ 70,000\end{array}$ Direct materials inventory increased by _____.

A)$70,000
B)$41,000
C)$30,000
D)$74,000

Question 55

Mets Company had the following information: $\begin{array}{ll}\text { Budgeted variable factory overhead } & \$ 66,000 \\ \text { Budgeted fixed factory overhead } & \$ 46,500 \\ & \\ \text { Actual variable factory overhead } & \$ 70,500 \\ \text { Actual fixed factory overhead } & \$ 55,500\end{array}$
Budgeted cost-driver activity levels:
$\begin{array}{lr}\text { Direct-labor hours } & 32,000 \\ \text { Direct-labor costs } & \$ 150,000 \\ \text { Machine hours } & 60,000 \\ \text { Production setups } & 15,000\end{array}$
Actual cost-driver activity level s:
$\begin{array}{lr}\text { Direct-labor hours } & 31,500 \\ \text { Direct-labor costs } & \$ 165,600 \\ \text { Machine hours } & 56,190 \\ \text { Production setups } & 14,280\end{array}$ The budgeted factory-overhead rate using direct-labor hours as the cost driver is _____.

A)$4.00
B)$3.57
C)$3.52
D)$3.81

Question 56

Kings Company had the following information: $$\begin{array} { l l } \text { Budgeted factory overhead } & \$ 75,000 \\\text { Actual factory overhead } & \$ 80,000 \\\text { Budgeted: Direct-labor hours } & 20,000 \\\text { Actual: Direct-labor hours } & 21,000\end{array}$$ The amount of overhead applied to a company that uses 2,000 direct-labor hours is _____.

A)$8,000
B)$7,500
C)$7,140
D)$7,600

Question 57

Rockies Company had the following information: $$\begin{array} { l r } \text { Budgeted factory overhead } & \$ 90,000 \\\text { Actual factory overhead } & \$ 80,000 \\\text { Budgeted: Production setups } & 12,000 \\\text { Actual: Production setups } & 11,500\end{array}$$ The budgeted factory-overhead rate using production setups as the cost driver is _____.

A)$6.25
B)$6.52
C)$6.78
D)$7.50

Question 58

Patriots Company had the following information: $$\begin{array} { l r } \text { Budgeted factory overhead } & \$ 85,000 \\\text { Actual factory overhead } & \$ 105,000 \\\text { Budgeted: Direct-labor costs } & \$ 100,000 \\\text { Actual: Direct-labor costs } & \$ 105,000\end{array}$$ The journal entry to apply overhead to a job incurring $15,000 of direct-labor cost includes a _____.

A)debit to WIP Inventory for $12,750
B)credit to WIP Inventory for $15,000
C)debit to Factory Overhead Control for $12,750
D)credit to factory Overhead Control for $15,000

Question 59

To apply the budgeted overhead to a job, the budgeted overhead rate is multiplied by the _____.

A)actual cost-driver data
B)actual production in units
C)actual factory-overhead costs
D)estimated factory-overhead costs

Question 60

The two key items in determining the budgeted factory-overhead rate are budgeted total overhead and _____.

A)actual volume of the cost driver
B)actual factory-overhead costs
C)budgeted total volume of the cost driver
D)estimated factory-overhead costs

Question 61

The following information was gathered for Red Sox Company: $$\begin{array} { l r } \text { Budgeted direct-labor hours } & 34,000 \\\text { Actual direct-labor hours } & 30,400 \\\text { Budgeted factory overhead } & \$ 144,500 \\\text { Actual factory overhead } & \$ 151,980\end{array}$$ Assume the cost driver is direct-labor hours.The budgeted factory-overhead rate is _____.

A)$4.45
B)$4.63
C)$4.25
D)$4.84

Question 62

The cost driver chosen for applying factory-overhead costs should be the cost driver that _____.

A)is easiest to understand
B)incurs the least administration cost
C)causes most of the overhead costs
D)confers a competitive advantage

Question 63

In the immediate write-off approach, overapplied overhead is regarded as _____.

A)a decrease in current income
B)a decrease in cost of goods sold
C)an addition to the cost of inventory
D)a reduction to the cost of inventory

Question 64

The most common treatment of an end-of-year immaterial overhead variance is to _____.

A)ignore it
B)allocate the variance among inventories and cost of goods sold
C)capitalize the variance as a cost of finished goods inventory
D)close the variance to cost of goods sold in the current period

Question 65

The following information was gathered for White Sox Company: $$\begin{array} { l r } \text { Budgeted direct-labor hours } & 34,000 \\\text { Actual direct-labor hours } & 32,400 \\\text { Budgeted factory overhead } & \$ 144,500 \\\text { Actual factory overhead } & \$ 155,980\end{array}$$ Assume the cost driver is direct-labor hours.The amount of factory overhead applied is _____.

A)$144,500
B)$137,700
C)$142,922
D)$149,980

Question 66

If the overhead control account has a credit balance at the end of the period, then overhead is _____.

A)overapplied and the difference should be credited to the proper accounts
B)overapplied and the difference should be debited to the proper accounts
C)underapplied and the difference should be debited to the proper accounts
D)underapplied and the difference should be credited to the proper

Question 67

The proration method of disposing of overhead variances assigns the variance in proportion to the sizes of the ending account balances to_____.

A)WIP Inventory, Finished Goods Inventory, and Direct Materials Inventory
B)Cost of Goods Sold, WIP Inventory, and Direct Materials
C)Direct Materials Inventory and WIP Inventory
D)Cost of Goods Sold, WIP Inventory, and Finished Goods Inventory

Question 68

The most widely used approach to disposing of overhead variances is _____.

A)proration
B)to allocate it between cost of goods sold and finished goods inventory
C)immediate write-off
D)to capitalize it as a cost of finished goods inventory

Question 69

If a department identifies more than one cost driver for overhead costs, the department ideally should _____.

A)put 80% of the cost into one pool and 20% into second pool
B)select a single cost driver
C)allocate 80% of the costs with 20% of the drivers
D)create as many cost pools as there are cost drivers

Question 70

_____ is the most important contributor to the variances between actual and applied overhead.

A)Poor forecasting
B)Inefficient use of overhead items
C)Calendar variations, number of workdays in a month
D)The difference between actual and budgeted volume of cost driver activity

Question 71

In the immediate write-off approach, underapplied overhead is regarded as _____.

A)a reduction in current income
B)an addition to the cost of inventory
C)a decrease in cost of goods sold
D)a decrease in the cost of inventory

Question 72

A company that produces more than its planned volume for a year will _____.

A)underapply overhead
B)not have an overhead variance
C)overapply overhead
D)none of these answers is correct

Question 73

Vikings Company incurred actual overhead costs of $297,500 for the year.A budgeted factory-overhead rate of 150% of direct-labor cost was determined at the beginning of the year.Budgeted factory overhead was $300,000, and budgeted direct-labor cost was $200,000.Actual direct-labor cost was $205,000 for the year.The factory-overhead variance for the year was_____.

A)$2,500 underapplied
B)$2,500 overapplied
C)$10,000 underapplied
D)$10,000 overapplied

Question 74

A normal costing system uses the following _____.

A)actual direct material, actual direct labor, and actual overhead
B)actual direct material, actual direct labor, and applied overhead
C)actual direct material, applied direct labor, and actual overhead
D)applied direct material, applied direct labor, and actual overhead

Question 75

The following information was gathered for Indians Company: $$\begin{array} { l r } \text { Budgeted direct-labor hours } & 8,000 \\\text { Actual direct-labor hours } & 8,400 \\\text { Budgeted factory overhead } & \$ 220,875 \\\text { Actual factory overhead } & \$ 224,970\end{array}$$ Assume the cost driver is direct-labor hours.The budgeted factory-overhead rate is _____.

A)$27.61
B)$27.77
C)$27.27
D)$29.03

Question 76

Yankees Company had the following information: $\begin{array}{ll}\text { Budgeted variable factory overhead } & \$ 66,000 \\\text { Budgeted fixed factory overhead } & \$ 46,500 \\& \\\text { Actual variable factory overhead } & \$ 67,500 \\\text { Actual fixed factory overhead } & \$ 52,500\end{array}$
$\text { Budgeted cost-driver activity levels: }$
$\begin{array}{lr}\text { Direct-labor hours } & 30,000 \\\text { Direct-labor costs } & \$ 150,000 \\\text { Machine hours } & 60,000 \\\text { Production setups } & 15,000\end{array}$
$\text { Actual cost-driver activity levels: }$
$\begin{array}{lr}\text { Direct-labor hours } & 31,500 \\\text { Direct-labor costs } & \$ 165,600 \\\text { Machine hours } & 56,190 \\\text { Production setups } & 14,280\end{array}$ The budgeted factory-overhead rate using production setups as the cost driver is _____.

A)$7.88
B)$8.00
C)$7.50
D)$8.40

Question 77

Tigers Company had the following information: $\begin{array}{l}\text { Budgeted variable factory overhead } & \$ 66,000 \\\text { Budgeted fixed factory overhead } & \$ 46,500 \\& \\\text { Actual variable factory overhead } & \$ 77,500 \\\text { Actual fixed factory overhead } & \$ 62,500\\\\\text { Budgeted cost-driver activity levels: }\\\text { Direct-labor hours } & 30,000 \\\text { Direct-labor costs } & \$ 160,000 \\\text { Machine hours } & 60,000 \\\text { Production setups } & 15,000\\\\\text { Actual cost-driver activity levels: }\\\\\text { Direct-labor hours } & 31,500 \\\text { Direct-labor costs } & \$ 165,600 \\\text { Machine hours } & 56,190 \\\text { Production setups } & 14,280\end{array}$
The budgeted factory-overhead rate using machine hours as the cost driver is _____.

A)$2.000
B)$2.003
C)$2.135
D)$1.815

Question 78

The excess of actual overhead over the overhead applied to products is called _____.

A)overapplied overhead
B)underapplied overhead
C)overestimated overhead
D)prorated overhead

Question 79

The following information was gathered for Royals Company: $$\begin{array} { l r } \text { Budgeted direct-labor hours } & 7,750 \\\text { Actual direct-labor hours } & 8,100 \\\text { Budgeted factory overhead } & \$ 220,875 \\\text { Actual factory overhead } & \$ 224,970\end{array}$$ Assume the cost driver is direct-labor hours.The amount of factory overhead applied is _____.

A)$220,875
B)$230,850
C)$215,295
D)$224,970

Question 80

_____ is least likely to be a cost driver as a basis for applying overhead costs.

A)Direct-labor cost
B)Indirect labor hours
C)Machine hours
D)Production setups