Overhead Accounting MCQs

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Overhead is the cost incurred in the course of making a product, providing a service or running a department, but which cannot be traced directly
Overhead Accounting MCQs | MCQs.CLUB

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Overhead Accounting MCQs

Overhead is the cost incurred in the course of making a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department. The manufacturing overhead Multiple-Choice Questions (MCQs) here on MCQs.club covers the overhead absorption rate accounting meaning/formula/method/calculation of overheads. Overheads include both fixed and variable. These MCQs are helpful for both Professional accounting and competitive exams.

  1. Overhead is the cost incurred in the course of making a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department.
    1. Correct
    2. Incorrect
  2. Indirect expenses are also known as overheads.
    1. True
    2. False
  3. Overhead is actually the total of:
    1. Indirect materials
    2. Indirect expenses
    3. Indirect labour
    4. All of the above
  4. Overhead costs may be classified according to the function of the organization as:
    1. Production/Manufacturing overheads
    2. Non-production/Non-manufacturing overheads
    3. Both A&B
    4. None
  5. 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
    1. The above statement is true
    2. The above statement is false
  6. Production overheads represent indirect materials, indirect wages and indirect expenses attributable to:
    1. Production activities
    2. Service activities
    3. Both A&B
    4. None
  7. 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
      1. True
      2. False
  8. Which of the following procedure is incorrect for attributing overhead costs to cost units?
    1. Collecting production overhead costs by item
    2. Establishing cost centers
    3. Allocating and apportioning overhead costs to cost centers
    4. Apportioning service cost center costs to production cost centers
    5. Absorbing production cost center costs into cost units
      1. All of the above are correct
      2. All of the above are incorrect
      3. (II) and (IV) are incorrect
      4. (II) is incorrect
  9. The total amount of factory overhead represents:
    1. Allocated costs
    2. Apportioned costs
    3. Share of service department costs
    4. All of the above
  10. 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.
    1. Correct
    2. Incorrect
  12. 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.
    1. Incorrect
    2. Correct
  13. Absorption is also called:
    1. Allocation
    2. Sharing
    3. Overhead recovery
    4. None
  14. When overheads have been allocated and apportioned to production cost centres, they are charged to the cost of products manufactured in the cost centre.
    1. The above statement is correct
    2. The above statement is incorrect
  15. Production overheads are the overhead costs of both the production departments and the service departments.
    1. False
    2. True
  16. 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.
      1. Correct
      2. Incorrect
  17. Sharing the costs of the service centres between the production centres is called:
    1. Reapportionment
    2. Reallocation
    3. Secondary apportionment
    4. None
  18. The total overhead costs of each production centre should be:
    1. Costs allocated directly to the production centre
    2. Shared costs apportioned to the production centre
    3. A share of the costs of each service department, apportioned to the production centre
    4. All of the above
  19. The absorption rate may be calculated by the fraction:
    • Total overhead costs;
    • Total of absorption basis.
      1. Correct
      2. Incorrect
  20. 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
      1. All of the above
      2. (I) (IV) and (V) only
      3. (IV) and (V) only
      4. None
  21. The purpose of allocation and apportionment of overheads is to calculate an absorption rate for each production department.
    1. False
    2. True
  22. Absorption rates are used to add overhead costs to:
    1. The Admin costs
    2. Other expenses
    3. The costs of production
    4. None
  23. 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
    1. The above statement is correct
    2. The above statement is incorrect
  24. The reciprocal apportionment and can be done using:
    1. Repeated distribution method
    2. Simultaneous equations method
    3. Both A&B
    4. None
  25. A single overhead absorption rate might be used for all the production departments in the factory.
    1. True
    2. False
  26. Single overhead absorption rate is also known as:
    1. Blanket rate
    2. Factory-wide absorption rate
    3. Both A&B
    4. None
  27. 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.
    1. True
    2. False
  28. Blanket overhead rates are not appropriate in the following circumstances.
    1. There is more than one department
    2. Jobs do not spend an equal amount of time in each department
    3. Both A&B
    4. None
  29. 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.
    1. The above statement is correct
    2. The above statement is incorrect
  30. Non-production overhead costs are never added to the value of inventory.
    1. False
    2. True
  31. 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.
    1. True
    2. False
  32. Overhead absorption is the process whereby overhead costs allocated and apportioned to production cost centres are added to unit, job or batch costs.
    1. True
    2. False
  33. Overhead absorption is sometimes called overhead recovery.
    1. False
    2. True
  34. Overheads are usually added to cost units using a predetermined overhead absorption rate, which is calculated using figures from the budget.
    1. False
    2. True
  35. 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.
    1. Correct
    2. Incorrect
  36. A predetermined overhead absorption rate is also known as:
    1. Fixed overhead absorption rate
    2. The fixed overhead recovery rate
    3. The fixed overhead applied
    4. All of the above
  37. If the amount of production overheads absorbed into product costs is more than the actual production overhead expenditure, there is:
    1. Over-absorbed overhead
    2. Under-absorbed overhead
    3. Neither A or B
    4. None
  38. 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.
    1. Correct
    2. Incorrect
  39. 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.
    1. False
    2. True
  40. Identify the circumstances where under- or over-recovery of overhead will occur:
    1. Actual overhead costs are different from budgeted overheads
    2. The actual activity level is different from the budgeted activity level
    3. Actual overhead costs and actual activity level differ from the budgeted costs and level
    4. All of the above
  41. Overheads can be as:
    1. Fixed overheads
    2. Variables overheads
    3. Both A&B
    4. None
  42. 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.
    1. The above statement is correct
    2. The above statement is incorrect

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