When standard overhead costs are charged to production during the period, _____

Inhaltsverzeichnis Show

What is Factory Overhead?
Examples of Factory Overhead
Factory Overhead Variances
Factory Overhead Best Practices
Terms Similar to Factory Overhead
When standard costs are used factory overhead is assigned?
For which standard cost is used Mcq?
Why is fixed overhead in the master budget the same as fixed overhead in the flexible budget?
For which standard cost is used?

What is Factory Overhead?

Factory overhead is the costs incurred during the manufacturing process, not including the costs of direct labor and direct materials. Factory overhead is normally aggregated into cost pools and allocated to units produced during the period. It is charged to expense when the produced units are later sold as finished goods or written off. The allocation of factory overhead to units produced is avoided under the direct costing methodology, but is mandated under absorption costing. The allocation of factory overhead is required when producing financial statements under the dictates of the major accounting frameworks.

Examples of Factory Overhead

Examples of factory overhead costs are noted below:

Production supervisor salaries
Quality assurance salaries
Materials management salaries
Factory rent
Factory utilities
Factory building insurance
Fringe benefits
Depreciation
Equipment setup costs
Equipment maintenance
Factory supplies
Factory small tools charged to expense
Insurance on production facilities and equipment
Property taxes on production facilities

The range of possible factory overhead costs can be quite extensive, depending upon the size and complexity of a factory operation and the level of detail at which costs are recorded.

Factory Overhead Variances

After factory overhead is allocated to inventory, the amount actually allocated will vary from the standard amount that had been budgeted to be allocated. This difference is caused by either a spending variance or an efficiency variance. The spending variance occurs because the actual amount of factory overhead expenditure incurred in the period was different from the standard amount that had been budgeted at some point in the past. The efficiency variance occurs because the the amount of units to which the factory overhead was allocated varied from the standard amount of production that had been expected when the allocation rate was set up.

Factory Overhead Best Practices

The use of factory overhead is mandated by accounting standards, but does not bring real value to the understanding of overhead costs, so a best practice is to minimize the complexity of the factory overhead allocation methodology. Ideally, there should be a small number of highly aggregated factory overhead accounts that are pooled into a single cost pool, and then allocated using a simple methodology. Also, the amount of factory overhead analysis and recordation work can be mitigated by charging all immaterial factory costs to expense as incurred.

Terms Similar to Factory Overhead

Factory overhead is also known as manufacturing overhead or manufacturing burden.

Standard Costing is an integral part of the costing process within an organisation. It is a process that helps compare the revenues and actual cost of producing a good or service with the actual results to measure the variance and understand its reasons.

Below is a list of multiple-choice questions and answers on Standard Costing to help students understand the importance of this process in a company’s overall decision making.

Which of the following is true about Standard Costing?
1. It is a technique of implementing cost control within the organisation
2. It helps in planning out business activities within the organisation
3. Both a and b are incorrect
4. Both a and b are correct

Answer: a

Which of the following industries is Standard Costing most suited for?
1. It is suitable for industries that produce standard products
2. It is suitable for enterprises that are engaged in service activities
3. It is suitable for industries that produce non-standard products
4. None of the above

Answer: a

Which of the following is not a demerit of the Standard Costing System?
1. The traditional cost variances are not tied to any specific product lines
2. Standard Costing System is much more expensive than other systems
3. It is usually less expensive than normal or actual costing
4. All of the above

Answer: c

Which of the following is an advantage of the Standard Costing System?
1. It helps in promoting and measuring efficiencies within an organisation
2. It helps to control and reduce the overall costing within an organisation
3. It helps to fix the selling price for the products manufactured within an organisation
4. All of the above

Answer: d

Which of the following activities is the Standard Costing System used for?
1. It is a basis for implementing cost control and fixing the price of products through variance analysis
2. It helps to ascertain the cost-volume relationship between products manufactured by the business
3. It helps to establish the breakeven point for the products manufactured by the company
4. None of the above

Answer: a

Which of the following activities is true about the cost variance under the Standard Costing System?
1. Cost variance is the difference between the standard cost and the actual cost
2. Cost variance is the difference between the standard cost and the budgeted cost
3. Cost variance is the difference between the standard cost and the marginal cost
4. Cost variance is the difference between the actual cost and the marginal cost

Answer: a

Which of the following activities is true under the Standard Costing System?
1. The overhead volume variance is always beneficial
2. The ideal time variance is never favourable
3. To calculate the overall costs, a company can either use budgetary control or standard costing but not both of those techniques
4. The overhead efficiency variance plus overhead expense variance is equal to the overhead budget variance for variable overheads

Answer: b

Which of the following statements is true under the Standard Costing System?
1. Standard cost is a predetermined or estimated cost to either produce a good/service or perform an activity within the organisation
2. Standard cost is a control technique that helps to report variances by comparing pre-set standards to actual costs to facilitate action
3. Both a and b are incorrect
4. Both a and b are correct

Answer: d

Which of the following statements is not a reason for price variance of unfavourable direct materials?
1. The actual loss is greater than the estimated loss
2. The actual rate is lower than the standard rate
3. Both a and b are correct
4. Both a and b are incorrect

Answer: c

Which of the following is the audit fees a part of under the Standard Costing System?
1. Audit fees is a part of the administration overhead in an organisation
2. Audit fees is a part of the distribution overhead in an organisation
3. Audit fees is a part of the selling overhead in an organisation
4. Audit fees is a part of the works on cost in an organisation

Answer: a

Which of the following parties are responsible for material price variances?
1. Production supervisors
2. Purchasing managers
3. Production schedules
4. None of the above

Answer: b

Which of the following is a part of the Standard Costing process within an organisation?
1. Comparison of standard and actual costing process
2. Preparation and usage of the standard costing
3. Analysis of variances
4. All of the above

Answer: d

The basic standard within the Standard Costing process is established for __________.
1. A long period
2. The current period
3. The short period
4. An indefinite period

Answer: d

Which of the following is not a part of the cost accounting concept?
1. Product costing
2. Profit sharing
3. Controlling
4. Planning

Answer: b

The ascertaining of costs after they are incurred is known as _____.
1. Historical costing
2. Notional costing
3. Marginal costing
4. Sunk cost

Answer: a

Which of the following is the true meaning of timekeeping?
1. The time spent by a worker in the factory
2. The time spent by a worker without work
3. The time spent by a worker off their job
4. The time spent by a worker on their job

Answer: a

It is not possible to measure labour productivity by comparing ______.
1. Standard time with actual time
2. Total output with total wage
3. Total person-hours with the total output
4. None of the above

Answer: b

The loss that arises in manufacturing due to the nature of a product is known as ______.
1. Abnormal loss
2. Net loss
3. Normal loss
4. None of the above

Answer: c

A company maintains a _____ to avoid stopping production due to the shortage of material.
1. Minimum stock level
2. Reorder level
3. Maximum stock level
4. None of the above

Answer: a

The discarded materials that have zero value are called _______.
1. Scrap
2. Waste
3. Spoilage
4. None of the above

Answer: b

Also See:

Difference between Standard Costing Budgetary Control
MCQs on Marginal Costing

When standard costs are used factory overhead is assigned?

When standard costs are used, factory overhead is assigned to products with a predetermined standard overhead rate. Companies promoting continuous improvement strive to achieve practical standards rather than ideal standards. A cost variance is the difference between actual cost and standard cost.

For which standard cost is used Mcq?

Standard cost is used to identify the variances between the actual cost incurred and the cost that should have occurred to produce the goods in normal conditions. Standard cost is a predetermined cost.

Why is fixed overhead in the master budget the same as fixed overhead in the flexible budget?

Fixed overhead in the master budget is the same as fixed overhead in the flexible budget because fixed costs do not change with changes in units produced.

For which standard cost is used?

Standard costing, also known as standard cost accounting, is used to set budgets and plan for future expenses. It is a type of cost accounting mainly used in the manufacturing sector because it is easier to allocate costs directly to products being produced.