A scenario where the allocated indirect costs are lower than the actual overhead costs incurred is called ___________?
Show answer Hide answer
Answer: C. under allocated indirect cost
Explanation
Underallocated indirect costs occur when the amount of overhead allocated to products is less than the actual overhead costs incurred. This variance arises when predetermined overhead rates underestimate actual expenditures or activity levels. Consequently, the ledger shows an underallocated indirect cost balance. Firms typically apply overhead using predetermined rates based on budgeted costs and activity levels at the start of the year. At period-end, actual overhead costs are compared with allocated amounts to find variances. If actual costs exceed allocated amounts, the variance is underallocated overhead.
Accounting departments must adjust underallocated indirect cost balances at year-end by writing them off to cost of goods sold or prorating them. Monitoring this variance helps management refine future overhead budgeting accuracy. Overallocated indirect costs happen when allocated overhead exceeds actual expenses incurred. Budget terms relate to spending plans rather than the specific variance between allocated and actual overhead.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
Related questions
Q1. A costing approach where only variable production costs are capitalized as inventory is termed ___________?
Show answer Hide answer
Answer: C. variable costing
Variable costing capitalizes only variable production costs as inventory, treating fixed manufacturing overhead as a period expense. When goods are produced, only direct materials, direct labor, and variable overhead ent...
Q2. Expenses associated with all activities tied to distinct products or services are referred to as ___________?
Show answer Hide answer
Answer: B. output-unit level costs
Output-unit-level costs are associated with individual units of products or services produced. Each unit consumed incurs these expenses in direct proportion to the volume of output. Therefore, costs tied directly to indi...
Q3. Costs are categorized into variable or fixed types according to __________?
Show answer Hide answer
Answer: D. both a and b
Whether a cost is classified as variable or fixed depends on both the specific activity and the given time horizon. Over short time frames, many costs remain fixed, but over longer horizons, more costs become variable. S...
Q4. A cost associated with a specific cost object that is not feasible to trace in an economically viable way is called __________?
Show answer Hide answer
Answer: A. indirect cost
An indirect cost cannot be economically or feasibly traced to a specific cost object. Because tracking the exact consumption for every individual unit is impractical, companies allocate these expenses instead. Thus, the...
Q5. Expenses linked to holding completed inventory, including spoilage, obsolescence, and insurance, are categorized as ___________?
Show answer Hide answer
Answer: A. carrying costs
Carrying costs include all expenses associated with holding inventory, such as storage space, insurance, spoilage, and obsolescence. Holding goods in a warehouse ties up capital and incurs continuous maintenance expenses...
Q6. A valuation method that organizes all business activities into a structured cost hierarchy is classified as ____________?
Show answer Hide answer
Answer: A. activity based costing
Activity-based costing organizes all business activities into a structured cost hierarchy to improve overhead allocation. By categorizing tasks into unit, batch, product, and facility levels, it models resource consumpti...