Accounting Overheads Quiz

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Questions and Answers

What are selling overheads and provide two examples?

Selling overheads are indirect expenses incurred to promote sales and retain customers. Examples include advertising and salesmen's salaries.

How do distribution overheads differ from selling overheads?

Distribution overheads are incurred from the completion of products in the factory to their delivery to consumers. They focus on logistics, unlike selling overheads which are focused on marketing.

Describe indirect materials and provide two examples.

Indirect materials are materials not easily identifiable with a specific product or job. Examples include oil and cleaning materials.

What are fixed overheads and give one example?

Fixed overheads are costs that do not change with the volume of production. An example is rent. Signup and view all the answers

Explain what normal overheads are.

Normal overheads are costs that are expected to occur under regular business operations. They are included in the production cost. Signup and view all the answers

What distinguishes abnormal overheads from normal overheads?

Abnormal overheads are unexpected extra costs that exceed normal expectations, while normal overheads are part of routine business costs. Signup and view all the answers

Define semi-variable overheads and provide one example.

Semi-variable overheads contain both fixed and variable components, changing partially with production volume. An example is a utility bill that has a fixed charge plus a variable usage charge. Signup and view all the answers

What are allocable overheads and why are they important?

Allocable overheads can be directly assigned to a specific cost center or cost unit. They are important for precise costing and financial reporting. Signup and view all the answers

What are the key steps involved in linking overheads to cost units?

The key steps are classification, codification and collection, allocation and apportionment, re-apportionment, and absorption of overheads. Signup and view all the answers

How are factory overheads defined and what are some examples?

Factory overheads are indirect charges related to production within the factory, such as factory rent, plant depreciation, and repairs to machinery. Signup and view all the answers

What is meant by the classification of overheads?

Classification of overheads refers to grouping various overhead items into distinct categories based on common characteristics. Signup and view all the answers

List two categories of overheads based on function and provide a brief description for each.

Two categories are Factory Overheads, which are indirect costs of production in the factory, and Office and Administrative Overheads, which cover costs for managing and administering the organization. Signup and view all the answers

What are the characteristics considered in the classification of overheads?

Overheads can be classified according to function, elements, behavior, and controllability. Signup and view all the answers

Why are office and administrative overheads important for an organization?

Office and administrative overheads are important as they encompass costs required for planning, controlling, and directing the organization’s operations. Signup and view all the answers

What is the significance of the absorption of overheads?

The absorption of overheads is significant as it assigns overhead costs to cost units, ensuring that all manufacturing costs are accounted for in product pricing. Signup and view all the answers

Define selling overheads and distribution overheads based on their functions.

Selling overheads are indirect costs associated with promoting and selling products, while distribution overheads relate to the expenses incurred in delivering products to customers. Signup and view all the answers

What is the difference between normal and abnormal overheads?

Normal overheads are expected and unavoidable expenses included in production costs, while abnormal overheads are unexpected expenses that are recorded in profit and loss accounts. Signup and view all the answers

Define allocable and unallocable overheads.

Allocable overheads can be directly assigned to specific cost units or centers, while unallocable overheads cannot be directly assigned and remain indirect. Signup and view all the answers

Give an example of a fixed overhead and explain why it is categorized as such.

An example of a fixed overhead is rent, as it remains constant regardless of the production volume or activity level. Signup and view all the answers

What characterizes variable overheads, and can you provide an example?

Variable overheads change directly with the production volume; an example is indirect materials used in the manufacturing process. Signup and view all the answers

Explain semi-variable overheads and provide an example.

Semi-variable overheads contain both fixed and variable components; an example is electricity charges that have a fixed base charge plus variable usage fees. Signup and view all the answers

What role do overheads play in determining the cost of production?

Overheads contribute significantly to the total cost of production, influencing pricing strategies and profitability. Signup and view all the answers

Why is it important to distinguish between different types of overheads?

Distinguishing between overhead types helps in accurate cost allocation, budgeting, and financial analysis. Signup and view all the answers

Describe the implication of fixed overhead costs declining per unit as output increases.

As output increases, fixed overhead costs decline per unit, which improves the unit contribution margin and can enhance profitability. Signup and view all the answers

What is the primary distinction between allocation and apportionment of overheads in a factory setting?

Allocation involves directly assigning overheads to specific departments, while apportionment distributes overheads to departments based on a reasonable basis. Signup and view all the answers

Identify two types of departments mentioned in the context of overheads in a factory.

The two types of departments are production departments and service departments. Signup and view all the answers

List three examples of overhead costs that can be allocated to specific departments.

Examples include electricity charges, depreciation of machinery, and employee wages of service department workers. Signup and view all the answers

What is the purpose of re-apportionment of overheads in departmentalization?

Re-apportionment is performed to further distribute overheads to specific departments when necessary. Signup and view all the answers

Explain how departmentalization of overheads aids in cost control.

It helps compare actual overhead costs against budgeted amounts, facilitating better control over expenses. Signup and view all the answers

In departmentalization, what might serve as a basis for apportioning overheads?

Common bases for apportionment include floor space used or direct labor hours. Signup and view all the answers

Define 'cost allocation' in the context of overheads.

Cost allocation refers to the direct assignment of costs to specific cost objects, like particular departments. Signup and view all the answers

What advantage does departmentalization provide in terms of cost ascertainment?

It allows for accurate determination of costs related to individual products or departments. Signup and view all the answers

Flashcards

Prime Cost

The total of direct materials and direct labor costs.

Overhead

Indirect costs in production, administration, sales, etc.