Question 1

Assume machine hours are the cost-allocation base for the budgeted rate for fixed overhead costs.The total fixed overhead cost applied to a product is the result of multiplying the ________ by the ________ for the product.

Accepted Answer

The total fixed overhead cost applied to a product is calculated by multiplying the budgeted fixed overhead rate by the actual machine hours used.

Question 2

The two key items in determining the budgeted factory overhead rate are total budgeted factory overhead costs and ________.

Accepted Answer

The budgeted factory overhead rate is determined by dividing the total budgeted factory overhead costs by the budgeted cost-allocation base level. Actual amounts and costs are not used in determining the budgeted rate.

Question 3

In a clothing factory,clothing items are sewn by hundreds of workers using sewing machines and hand stitching.The sewing machines are used 80 percent of the time it takes to make the clothing items.Overhead costs relate primarily to electricity and indirect materials such as needles,bobbins,thread and thimbles.What is the most appropriate cost-allocation base for applying overhead costs to the clothing items?

Accepted Answer

The number of sewing machine hours is the most appropriate cost-allocation base for applying overhead costs to the clothing items because the sewing machines are used 80 percent of the time it takes to make the clothing items. Thus, the cost of electricity and indirect materials is primarily incurred when the sewing machines are running, making the total number of sewing machine hours the best measurement of the amount of overhead costs incurred.

Question 4

A company can increase the accuracy of its product cost information by converting indirect costs to direct costs.

Accepted Answer

Converting indirect costs to direct costs can increase the accuracy of product cost information because it allows the company to allocate those costs more accurately to specific products or activities. Direct costs are costs that can be easily attributed to a specific product or activity, while indirect costs are more difficult to assign directly. By converting indirect costs to direct costs, the company can better understand the true costs of producing each product and adjust pricing or production levels accordingly.

Question 5

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

Accepted Answer

The budgeted overhead rate is applied to a job by multiplying it by the actual amount of the cost driver (such as labor hours, machine hours, etc.) used by the job. This method ensures that the overhead costs allocated to a job reflect the actual resources consumed by that job.

Question 6

Rocky Company had the following information:
$\begin{array}{ll}
\text { Budgeted factory overhead costs } & \$ 90,000 \
\text { Actual factory overhead costs } & \$ 80,000 \
\text { Budgeted production setups } & 12,000 \
\text { Actual production setups } & 11,500
\end{array}$
Assume production setups are the cost driver for factory overhead costs.The budgeted factory overhead rate is ________.

Accepted Answer

The budgeted factory overhead rate is calculated by dividing the budgeted factory overhead costs by the budgeted production setups: $90,000 / 12,000 setups = $7.50 per setup.

Question 7

The overhead cost applied to a job is equal to the budgeted overhead rate times the budgeted amount of the cost driver.

Accepted Answer

The overhead cost applied to a job is typically calculated by multiplying the actual amount of the cost driver used by the job with the predetermined overhead rate, not the budgeted amount of the cost driver.

Question 8

What is the 80-20 rule used when selecting cost allocation bases for the budgeted overhead rate?

Accepted Answer

The 80-20 rule suggests that 20% of the cost-allocation bases are responsible for 80% of the overhead costs. Therefore, selecting these key cost-allocation bases as the basis for the budgeted overhead rate can result in a more accurate allocation of overhead costs to products or services.

Question 9

Machine usage in a department causes most of the overhead costs such as depreciation expense,maintenance expense and repair expense.What is the most appropriate cost-allocation base for applying overhead costs to products?

Accepted Answer

The most appropriate cost-allocation base for applying overhead costs to products in this scenario is the number of machine hours. This is because the majority of the overhead costs are attributed to the usage of the machines, which can be measured by the number of machine hours used. This method of allocating overhead costs is also commonly used in manufacturing industries.

Question 10

Green Company had the following information:
$\begin{array}{ll}
\text { Budgeted factory overhead costs }&\$144,500\
\text { Actual factory overhead costs }&\$151,980\
\text { Budgeted direct labor hours } & 34,000 \
\text { Actural direct labor hours } & 30.400
\end{array}$
Assume direct labor hours are the cost driver for factory overhead costs.The budgeted factory overhead rate is ________.

Accepted Answer

The budgeted factory overhead rate is calculated by dividing the budgeted factory overhead costs by the budgeted direct labor hours: $144,500 / 34,000 hours = $4.25 per direct labor hour.

Question 11

Barenz Builders had the following information available for the past twelve months:
$\begin{array}{ll}
\text { Budgeted factory overhead costs }&\$80,000\
\text { Actual factory overhead costs }&\$82,000\
\text { Budgeted direct labor hours } & 40,000 \
\text { Actural direct labor hours } &39,500
\end{array}$
Assume the cost driver for factory overhead costs is machine hours and a job uses 10,000 machine hours.The job was budgeted to use 11,000 machine hours.What amount of factory overhead is applied to the job?

Accepted Answer

The factory overhead rate is calculated using budgeted costs and budgeted machine hours: $80,000 / 40,000 hours = $2 per hour. The job uses 10,000 machine hours, so the applied overhead is 10,000 hours * $2/hour = $20,000.

Question 12

Accountants use actual overhead rates when applying overhead costs to jobs as they are completed.

Accepted Answer

Accountants often use predetermined overhead rates to apply overhead costs to jobs, because actual overhead rates can only be calculated at the end of the accounting period, making it impractical for ongoing job costing.

Question 13

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

Accepted Answer

Creating as many cost pools as there are cost drivers allows for a more accurate allocation of overhead costs by matching each cost with its most relevant driver. This approach enhances the precision of cost allocation and helps in better understanding the cause-and-effect relationship between costs and activities.

Question 14

The cost-allocation base used for the fixed overhead rate should be ________.

Accepted Answer

The cost-allocation base used for the fixed overhead rate should be the most plausible and reliable measure available of the cause and effect relationship between overhead costs and production volume. This ensures that overhead costs are allocated to products in a way that reflects their actual usage of the overhead resources. Underestimating or overestimating the allocation base could lead to distorted cost allocations and misinformed decision-making. Using sales as the allocation base is not appropriate for fixed overhead costs, as these costs are not directly related to sales revenue.

Question 15

Dodge Company had the following information:
$\begin{array} { l  }
 \text {Budgeted factory overhead costs }&\$ 90,000\
 \text {Actual factory overhead costs }&\$82,000 \
 \text { Budgeted machine hours}&40,000 \ \text { Actual machine hours}&35,500 \
\end{array}$

Assume machine hours are the cost driver of factory overhead costs.The budgeted factory overhead rate is ________.

Accepted Answer

The budgeted factory overhead rate is calculated by dividing the budgeted factory overhead costs by the budgeted machine hours: $90,000 / 40,000 = $2.25 per machine hour.

Question 16

Kingsway Company had the following information available for the past quarter:
$\begin{array}{ll}
\text { Budgeted factory overhead costs }&\$75,000\
\text { Actual factory overhead costs }&\$80,000\
\text { Budgeted direct labor hours } & 20,000 \
\text { Actural direct labor hours } &21,000
\end{array}$
Assume the cost driver for factory overhead costs is direct labor hours and a job uses 2,000 direct labor hours.The job was budgeted to use 2,100 direct labor hours.What amount of factory overhead is applied to the job?

Accepted Answer

The factory overhead applied to the job is calculated using the predetermined overhead rate, which is based on the budgeted amounts. The predetermined overhead rate is calculated as Budgeted factory overhead costs / Budgeted direct labor hours = $75,000 / 20,000 hours = $3.75 per direct labor hour. For a job that uses 2,000 direct labor hours, the applied factory overhead is 2,000 hours * $3.75/hour = $7,500.

Question 17

When calculating the budgeted overhead rate,the numerator of the fraction is the actual amount of the cost driver.

Accepted Answer

The numerator of the fraction when calculating the budgeted overhead rate is actually the estimated or budgeted amount of indirect overhead costs for the period. The denominator is typically the estimated amount of activity or cost driver that will be used to allocate the overhead costs to products or services. So, the numerator is not the actual amount of the cost driver but rather an estimation of the indirect costs for the period.

Question 18

USC Company has the following information available:
$\begin{array}{ll}
\text { Budgeted factory overhead costs } & \$ 90,000 \
\text { Actual factory overhead costs } & \$ 80,000 \
\text { Budgeted direct labor hours } & 20,000 \
\text { Actual direct labor hours } & 21,000
\end{array}$
Assume direct labor hours are the cost driver of factory overhead costs.The budgeted factory overhead rate is ________.

Accepted Answer

The answer of USC Company has the following information available:
\(\begin{array}{ll}
\text...

Question 19

The budgeted factory overhead rate is computed as ________.

Accepted Answer

The budgeted factory overhead rate is computed by dividing the budgeted factory overhead costs by the budgeted cost-allocation base level. This rate is then used to allocate overhead to production during the budgeted period. Option A is incorrect because it uses actual factory overhead costs, not budgeted. Option B is incorrect because it uses actual cost driver activity instead of budgeted. Option C is incorrect because it uses budgeted factory overhead costs, but actual cost driver activity.

Question 20

Ideally,if a department has more than one cost-allocation base for overhead costs,it should ________.

Accepted Answer

When a department has more than one cost-allocation base for overhead costs, it should accumulate a separate cost pool for each cost-allocation base and put the overhead costs into the appropriate cost pool. This method is called activity-based costing (ABC) and it provides more accurate product costing information than traditional costing methods that use only one cost driver. Using multiple cost pools ensures that overhead costs are allocated based on the different activities that consume them, rather than using a single allocation method that may not accurately reflect the activity levels of each cost driver.

Quiz 13: Accounting for Overhead Costs

Assume machine hours are the cost-allocation base for the budgeted rate for fixed overhead costs.The total fixed overhead cost applied to a product is the result of multiplying the by the for the product.