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Bachelor of Commerce (B Com)
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Cost and Works Accounting 2
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Accounting of overheads (Part 1)
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Indirect expenses are also known as over...
Q.
Indirect expenses are also known as overheads.
A.
True
B.
False
C.
none
D.
none
Answer» A. True
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Cost and Works Accounting 2
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. Production Overheads are costs related to the production process other than direct labour and materials. They are also known as factory overheads since they are incurred inside the factory, other overheads such as selling and administrative overheads are always charged to in the period in which they are incurred
Production overheads represent indirect materials, indirect wages and indirect expenses attributable to:
Administration overheads and sales and distribution overheads are not absorbed into product costs. Instead, they are treated in full as an expense in the financial period to which they relate.
Indirect production costs are incurred in three main ways: • Production activities: costs arising in production departments such as fuel, depreciation, supervision • Service activities: the cost of operating non-producing departments such as materials handling, canteen • Establishment costs: general production overheads such as factory rent/rates, heating and lighting
Which of the following is not included in functional classification of overheads?
The process of distribution of overheads allotted to a particular department or cost center over the units produced is called:
Allocation is where overheads are allocated to cost centres. If a cost centre is responsible for the entire cost of an item of expenditure, the entire cost is charged directly to the cost centre.
When overheads have been allocated and apportioned to production cost centres, they are charged to the cost of products manufactured in the cost centre.
Production overheads are the overhead costs of both the production departments and the service departments.
Overheads can be absorbed into cost units by means of: • Physical unit produced • Percentage of prime cost • Percentage of direct wages • Direct labour hour rate • Machine hour rate