Question 1

In practice,it may be too costly to have several cost-allocation bases for applying overhead costs to products.

Accepted Answer

It is often not cost-effective to have multiple cost allocation bases for applying overhead costs to products. The cost of collecting and analyzing data for multiple allocation bases may outweigh the benefits of more accurate cost allocation. Therefore, companies may choose to use simpler methods for overhead cost allocation, such as using a single allocation base or a predetermined overhead rate.

Question 2

Victor 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 ________.

Accepted Answer

The budgeted factory overhead for the year was $300,000, which is 150% of the budgeted direct labor cost of $200,000. This means that the budgeted factory overhead rate was $1.50 for every direct labor dollar.

The actual direct labor cost was $205,000 for the year, which means that the budgeted factory overhead should have been $307,500 (205,000 x 1.50). However, the actual overhead costs incurred were only $297,500.

This results in an overapplied factory overhead of $10,000 ($307,500 - $297,500), which means that the company allocated more overhead costs to production than it actually incurred. Therefore, the answer is B.

Question 3

The most important contributor to the variance between actual and applied overhead costs is ________.

Accepted Answer

Operating at a different level of volume than the level used as a denominator in calculating the budgeted overhead rate can result in significant variances between actual and applied overhead costs. This is because the budgeted overhead rate is calculated based on an assumption of how much overhead will be incurred at a certain level of activity, and if the level of activity differs from that assumption, the amount of overhead incurred will also differ. Poor forecasting, inefficient use of overhead items, and price changes in those items can also contribute to variance, but they are generally considered less significant than operating at a different volume level.

Question 4

The immediate write-off of overhead variances is used because ________.

Accepted Answer

The immediate write-off of overhead variances is used because it is simpler, the company has probably sold most of the goods produced during the period so prorating the variance to inventory accounts would not produce materially different results, and the extra overhead costs result from inefficiencies in the current period and therefore do not represent assets. Therefore, all of the above options are the reasons for using immediate write-off of overhead variances.

Question 5

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

Accepted Answer

The cost driver chosen for applying factory overhead costs should be the one that causes most of the overhead costs as it will result in more accurate allocation of costs to individual products or services. Other factors such as ease of understanding, administrative costs, and ease of calculation should not be the primary consideration for choosing a cost driver.

Question 6

The excess of applied overhead costs over the actual overhead costs is called ________.

Accepted Answer

When applied overhead costs exceed actual overhead costs, the result is an overapplied overhead. This occurs when a company uses a predetermined overhead rate that is greater than the actual overhead costs incurred during the period. As a result, the overhead costs applied to products or services exceeds the actual overhead costs incurred, resulting in a higher cost of goods sold or a lower cost of goods manufactured.

Question 7

In the immediate write-off of overhead variances,underapplied overhead is regarded as a(n)________.

Accepted Answer

Underapplied overhead means that the actual manufacturing overhead costs were higher than the overhead costs allocated to products. Therefore, it is treated as an increase in the cost of goods sold to adjust for the underapplied amount.

Question 8

In practice,companies generally prorate overhead variances when it would materially affect ________ and ________.

Accepted Answer

Prorating overhead variances is done to ensure accurate inventory valuations, which affect both the balance sheet and the income statement. Net income is also affected by inventory valuations, thus making it necessary to prorate overhead variances. Stock dividends, cash dividends, and stock option plans are not directly affected by overhead variances and are therefore not relevant factors in the decision to prorate them.

Question 9

When selecting a cost driver for a budgeted overhead rate,no one cost driver is appropriate for all situations.

Accepted Answer

Cost drivers should be selected based on the activity that causes the most indirect costs in a particular situation. Different situations may require different cost drivers.

Question 10

There should be a strong cause-and-effect relationship between factory overhead costs incurred and the cost-allocation base chosen for its application.

Accepted Answer

A cause-and-effect relationship should exist between the factory overhead costs incurred and the cost-allocation base chosen for its allocation as it ensures cost allocates to the final product according to the resources consumed in the production process. This relationship results in a better understanding of the cost structure and improved decision-making.

Question 11

When we use an annual overhead rate consistently throughout the year for product costing,without altering it month to month,this is called a(n)________.

Accepted Answer

Using a consistent annual overhead rate throughout the year is characteristic of a normal costing system. In a normal costing system, actual costs are tracked and then applied to products using predetermined overhead rates, which are calculated based on estimated overhead costs and a measure of activity such as direct labor hours or machine hours. This allows for more accurate product costing and helps to smooth out any seasonal fluctuations in overhead costs. Direct costing and absorption costing are different methods of assigning overhead costs, and a constant costing system is not a recognized term in accounting.

Question 12

The following information was gathered for all the products made by the Ringaling Company:
$\begin{array}{ll}
\text { Budgeted direct labor hours } & 31,000 \
\text { Actual direct labor hours } & 32,400\
\text { Budgeted factory overhead costs }&\$147,250\
\text { Actual factory overhead costs }&\$149,980
\end{array}$
Assume the cost driver for factory overhead costs is direct labor hours.What is the amount of overapplied or underapplied overhead?

Accepted Answer

The answer of The following information was gathered for all...

Question 13

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

Accepted Answer

The answer of The most widely used approach to disposing...

Question 14

Under the immediate write-off method of disposing of underapplied or overapplied overhead costs,current net income is ________ by underapplied overhead costs and current net income is ________ by overapplied overhead costs.

Accepted Answer

Under the immediate write-off method, underapplied overhead costs decrease current net income because they represent additional costs that were not anticipated. Conversely, overapplied overhead costs increase current net income because they represent costs that were anticipated but not actually incurred.

Question 15

When the actual overhead costs exceed the amount of applied overhead costs,the overhead costs are ________.At the end of the accounting period,accountants dispose of the underapplied or overapplied overhead using ________ or ________.

Accepted Answer

When the actual overhead costs exceed the amount of applied overhead costs, the overhead costs are underapplied. At the end of the accounting period, accountants dispose of the underapplied or overapplied overhead using proration or immediate write-off. Therefore, option B is the correct answer as it correctly matches underapplied with proration and immediate write-off as the methods of disposal.

Question 16

To determine the cost of a manufactured product,a normal costing system uses ________.

Accepted Answer

Normal costing uses actual direct materials, actual direct labor, and applies overhead costs based on a predetermined rate, rather than using actual overhead costs.

Question 17

The following information was gathered for all the products made by the BBB Company:
$\begin{array}{ll}
\text { Budgeted direct labor hours } &8,000 \
\text { Actual direct labor hours } & 8,100\
\text { Budgeted factory overhead costs }&\$224,000\
\text { Actual factory overhead costs }&\$224,970
\end{array}$
Assume the cost driver for factory overhead costs is direct labor hours.What is the amount of overapplied or underapplied overhead?

Accepted Answer

The answer of The following information was gathered for all...

Question 18

Causes for the difference between applied and actual overhead costs do NOT include ________.

Accepted Answer

Repairs made on a regular, consistent basis should not cause a difference between applied and actual overhead costs as they are already accounted for in the budgeted amounts. A, B, and C can be factors that contribute to the difference between applied and actual overhead costs.

Question 19

In the immediate write-off approach to overhead variances,overapplied overhead is regarded as a(n)________.

Accepted Answer

Overapplied overhead means that the actual overhead costs were less than what was applied to the cost of goods sold. Therefore, it is treated as a decrease in the cost of goods sold to adjust for the overestimation.

Question 20

A department's applied overhead cost will ________ equal the actual overhead cost incurred.

Accepted Answer

Applied overhead cost rarely equals the actual overhead cost incurred due to estimation errors and differences between projected and actual activity levels.

Quiz 13: Accounting for Overhead Costs

In practice,it may be too costly to have several cost-allocation bases for applying overhead costs to products.

The most important contributor to the variance between actual and applied overhead costs is ________.

The immediate write-off of overhead variances is used because ________.

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

The excess of applied overhead costs over the actual overhead costs is called ________.

In the immediate write-off of overhead variances,underapplied overhead is regarded as a(n) ________.

In practice,companies generally prorate overhead variances when it would materially affect and .

When selecting a cost driver for a budgeted overhead rate,no one cost driver is appropriate for all situations.

There should be a strong cause-and-effect relationship between factory overhead costs incurred and the cost-allocation base chosen for its application.

When we use an annual overhead rate consistently throughout the year for product costing,without altering it month to month,this is called a(n) ________.

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

Under the immediate write-off method of disposing of underapplied or overapplied overhead costs,current net income is by underapplied overhead costs and current net income is by overapplied overhead costs.

When the actual overhead costs exceed the amount of applied overhead costs,the overhead costs are .At the end of the accounting period,accountants dispose of the underapplied or overapplied overhead using or .

To determine the cost of a manufactured product,a normal costing system uses ________.

Causes for the difference between applied and actual overhead costs do NOT include ________.

In the immediate write-off approach to overhead variances,overapplied overhead is regarded as a(n) ________.

A department's applied overhead cost will ________ equal the actual overhead cost incurred.