In a Standard Costing System, Overhead Is Applied to Production

question 54

Multiple Choice

In a standard costing system, overhead is applied to production on a basis of:

• A) the denominator hours chosen for the period.
• B) the budgeted hours for the normal production level of activity.
• C) the actual hours required to complete the output of the period.
• D) the standard hours allowed to complete the output of the period.

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Definitions:

Absorption Costing

An approach to accounting that integrates all costs associated with manufacturing - including direct materials, direct labor, and overhead costs, no matter if they are variable or fixed, into the final cost of a product.

Variable Costing

A bookkeeping technique that incorporates only variable production expenses, such as direct materials, direct labor, and variable manufacturing costs, into the cost of products, while omitting fixed overhead.

Manufacturing Company

A company engaged in the conversion of raw materials into finished goods on a large scale, using labor, machines, and chemicals processes.

Contribution Margin

The difference between sales revenue and variable costs of goods sold, indicating the amount available to cover fixed costs and generate profit.