The Accounting Principles Rule States That Financial Statements

question 22

Multiple Choice

The Accounting Principles Rule states that financial statements:

• A) Always must comply with GAAP
• B) Never should contain a departure from GAAP
• C) May contain a departure from GAAP for administrative reasons, as long as the departure is clearly disclosed
• D) May contain a departure from GAAP if adherence to GAAP would result in the statements being misleading

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Definitions:

Manufacturing Overhead Budget

An estimation of all manufacturing costs, excluding direct materials and direct labor, planned for a specific period.

Direct Labor-Hours

The cumulative hours that employees engaged in the manufacturing process have completed.

Variable Overhead Rate

The portion of overhead costs that varies directly with production volume, calculated as variable overhead costs divided by a certain measure of activity (e.g., labor hours or machine hours).

Fixed Manufacturing Overhead

Indirect production costs that remain constant regardless of the level of production, such as salaries, rent, and insurance.