Chapter:

30+ Accounting of overheads (Part 2) Solved MCQs

in Cost and Works Accounting 2

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1.	Apportionment means sharing on a reasonable basis. Many overhead costs are costs that cannot be allocated directly to one cost centre, because they are shared by two or more cost centres. These costs are apportioned between the cost centres.
A.	Incorrect
B.	Correct
C.	none
D.	none
Answer» B. Correct

discuss

2.	Absorption is also called:
A.	Allocation
B.	Sharing
C.	Overhead recovery
D.	None
Answer» C. Overhead recovery

discuss

3.	When overheads have been allocated and apportioned to production cost centres, they are charged to the cost of products manufactured in the cost centre.
A.	The above statement is correct
B.	The above statement is incorrect
C.	none
D.	none
Answer» A. The above statement is correct

discuss

4.	Production overheads are the overhead costs of both the production departments and the service departments.
A.	False
B.	True
C.	none
D.	none
Answer» B. True

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5.	The apportionment of production overhead costs might be in two stages: • sharing (or dividing) general costs between production centres and service centres; and • then sharing the costs of the service centres between the production centres.
A.	Correct
B.	Incorrect
C.	none
D.	none
Answer» A. Correct

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6.	Sharing the costs of the service centres between the production centres is called:
A.	Reapportionment
B.	Reallocation
C.	Secondary apportionment
D.	None
Answer» B. Reallocation

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7.	The total overhead costs of each production centre should be:
A.	Costs allocated directly to the production centre
B.	Shared costs apportioned to the production centre
C.	A share of the costs of each service department, apportioned to the production centre
D.	All of the above
Answer» C. A share of the costs of each service department, apportioned to the production centre

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8.	The absorption rate may be calculated by the fraction: • Total overhead costs • Total of absorption basis.
A.	Correct
B.	Incorrect
C.	none
D.	none
Answer» A. Correct

discuss

9.	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
A.	All of the above
B.	(I) (IV) and (V) only
C.	(IV) and (V) only
D.	None
Answer» A. All of the above

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10.	The purpose of allocation and apportionment of overheads is to calculate an absorption rate for each production department.
A.	False
B.	True
C.	none
D.	none
Answer» A. False

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11.	Absorption rates are used to add overhead costs to:
A.	The Admin costs
B.	Other expenses
C.	The costs of production
D.	None
Answer» B. Other expenses

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12.	A situation may arise where both service departments do work for the other service department, as well as the production departments. The secondary apportionment is more complex. The process is called reciprocal apportionment
A.	The above statement is correct
B.	The above statement is incorrect
C.	none
D.	none
Answer» A. The above statement is correct

discuss

13.	The reciprocal apportionment and can be done using:
A.	Repeated distribution method
B.	Simultaneous equations method
C.	Both A&B
D.	None
Answer» B. Simultaneous equations method

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14.	A single overhead absorption rate might be used for all the production departments in the factory.
A.	True
B.	False
C.	none
D.	none
Answer» A. True

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15.	Single overhead absorption rate is also known as:
A.	Blanket rate
B.	Factory-wide absorption rate
C.	Both A&B
D.	None
Answer» B. Factory-wide absorption rate

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16.	A blanket overhead absorption rate is an absorption rate used throughout a factory and for all jobs and units of output irrespective of the department in which they were produced.
A.	True
B.	False
C.	none
D.	none
Answer» A. True

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17.	Blanket overhead rates are not appropriate in the following circumstances.
A.	There is more than one department
B.	Jobs do not spend an equal amount of time in each department
C.	Both A&B
D.	None
Answer» B. Jobs do not spend an equal amount of time in each department

discuss

18.	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.
A.	The above statement is correct
B.	The above statement is incorrect
C.	none
D.	none
Answer» A. The above statement is correct

discuss

19.	Non-production overhead costs are never added to the value of inventory.
A.	False
B.	True
C.	none
D.	none
Answer» A. False

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20.	It is possible to add non-production overheads to the full production cost of units produced and sold (i.e. No cost will be carried forward to the next period in the form of closing stock), to obtain a full cost of sale.
A.	True
B.	False
C.	none
D.	none
Answer» A. True

discuss

21.	Overhead absorption is the process whereby overhead costs allocated and apportioned to production cost centres are added to unit, job or batch costs.
A.	True
B.	False
C.	none
D.	none
Answer» A. True

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22.	Overhead absorption is sometimes called overhead recovery.
A.	False
B.	True
C.	none
D.	none
Answer» B. True

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23.	Overheads are usually added to cost units using a predetermined overhead absorption rate, which is calculated using figures from the budget.
A.	False
B.	True
C.	none
D.	none
Answer» B. True

discuss

24.	Predetermined absorption rates is where, the absorption rate calculated in advance using estimates for cost and production volume in the annual financial plan or budget.
A.	Correct
B.	Incorrect
C.	none
D.	none
Answer» A. Correct

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25.	A predetermined overhead absorption rate is also known as:
A.	Fixed overhead absorption rate
B.	The fixed overhead recovery rate
C.	The fixed overhead applied
D.	All of the above
Answer» C. The fixed overhead applied

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26.	If the amount of production overheads absorbed into product costs is more than the actual production overhead expenditure, there is:
A.	Over-absorbed overhead
B.	Under-absorbed overhead
C.	Neither A or B
D.	None
Answer» A. Over-absorbed overhead

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27.	The over-absorbed overhead is accounted for as an adjustment to the profit in the period, and is added to profit in the cost accounting income statement.
A.	Correct
B.	Incorrect
C.	none
D.	none
Answer» A. Correct

discuss

28.	Under or over absorption is caused by the actual fixed overhead and production volume being different from those figures used to calculate the predetermined rate.
A.	False
B.	True
C.	none
D.	none
Answer» B. True

discuss

29.	Identify the circumstances where under- or over-recovery of overhead will occur:
A.	Actual overhead costs are different from budgeted overheads
B.	The actual activity level is different from the budgeted activity level
C.	Actual overhead costs and actual activity level differ from the budgeted costs and level
D.	All of the above
Answer» C. Actual overhead costs and actual activity level differ from the budgeted costs and level

discuss

30.	Variable overhead is overhead that increases as more production work is done. Total variable overhead expenditure therefore depends on the volume of production. Variable overhead is usually calculated as an amount for each direct labour hour worked.
A.	The above statement is correct
B.	The above statement is incorrect
C.	none
D.	none
Answer» A. The above statement is correct

discuss

30+ Accounting of overheads (Part 2) Solved MCQs

Apportionment means sharing on a reasonable basis. Many overhead costs are costs that cannot be allocated directly to one cost centre, because they are shared by two or more cost centres. These costs are apportioned between the cost centres.

Absorption is also called:

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.

The apportionment of production overhead costs might be in two stages: • sharing (or dividing) general costs between production centres and service centres; and • then sharing the costs of the service centres between the production centres.

Sharing the costs of the service centres between the production centres is called:

The total overhead costs of each production centre should be:

The absorption rate may be calculated by the fraction: • Total overhead costs • Total of absorption basis.

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

The purpose of allocation and apportionment of overheads is to calculate an absorption rate for each production department.

Absorption rates are used to add overhead costs to:

A situation may arise where both service departments do work for the other service department, as well as the production departments. The secondary apportionment is more complex. The process is called reciprocal apportionment

The reciprocal apportionment and can be done using:

A single overhead absorption rate might be used for all the production departments in the factory.

Single overhead absorption rate is also known as:

A blanket overhead absorption rate is an absorption rate used throughout a factory and for all jobs and units of output irrespective of the department in which they were produced.

Blanket overhead rates are not appropriate in the following circumstances.

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.

Non-production overhead costs are never added to the value of inventory.

It is possible to add non-production overheads to the full production cost of units produced and sold (i.e. No cost will be carried forward to the next period in the form of closing stock), to obtain a full cost of sale.

Overhead absorption is the process whereby overhead costs allocated and apportioned to production cost centres are added to unit, job or batch costs.

Overhead absorption is sometimes called overhead recovery.

Overheads are usually added to cost units using a predetermined overhead absorption rate, which is calculated using figures from the budget.

Predetermined absorption rates is where, the absorption rate calculated in advance using estimates for cost and production volume in the annual financial plan or budget.

A predetermined overhead absorption rate is also known as:

If the amount of production overheads absorbed into product costs is more than the actual production overhead expenditure, there is:

The over-absorbed overhead is accounted for as an adjustment to the profit in the period, and is added to profit in the cost accounting income statement.

Under or over absorption is caused by the actual fixed overhead and production volume being different from those figures used to calculate the predetermined rate.

Identify the circumstances where under- or over-recovery of overhead will occur:

Variable overhead is overhead that increases as more production work is done. Total variable overhead expenditure therefore depends on the volume of production. Variable overhead is usually calculated as an amount for each direct labour hour worked.