A Rule of Thumb for Deciding If Overhead Over or Under

question 125

Multiple Choice

A rule of thumb for deciding if overhead over or under applied is a material amount is:

• A) if it is more than 5% of total actual overhead costs
• B) if it is more than 10% of total actual overhead costs
• C) if it is more than 5% of cost of sales
• D) if it is more than 10% of cost of sales

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Definitions:

Fair Value

An estimate of the price at which an asset or liability could be traded in a current transaction between willing parties, other than in a forced or liquidation sale.

Goodwill

represents the excess of the purchase price over the fair value of the net assets of the acquired company in a business combination.

NCI

Non-Controlling Interest, a line item on the consolidated balance sheet that reflects the equity in a subsidiary not attributable directly or indirectly to the parent company.

Consolidation Approach

An accounting method used where a parent company combines its financial statements with those of its subsidiaries as if they comprise a single entity.