X D Microsoft Word-Optio Mcrosoft word . Optio x 31962819 1565596-dt-content-rid
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X D Microsoft Word-Optio Mcrosoft word . Optio x 31962819 1565596-dt-content-rid 9772199 2/course Microsot Word Optional Assignment 2 For each of the following multiple-choice questions, use your own words to explain why the given answer is the correct one, as well as why each of the other choices is incorrect (1) Which of the following items is debited to the Work-in-Process account? A. allocated manufacturing overhead B. completed goods transferred out of the plant C. accumulated depreciation on fixed assets D. actual manufacturing overhead The correct answer to (1) is A. . (2) Activity based costing system differs from traditional costing systems in the treatment of A. Direct labor costs B. Direct material costs C. Prime costs D. Indirect costs . The correct answer to (2) is D (3) Overallocated manufacturing overhead means that: A. the allocated manufacturing overhead cost was less than the actual manufacturing overhead cost. the allocated manufacturing overhead cost was greater than the actual manufacturing overhead cost. B. C. the budgeted manufacturing overhead cost was less than the actual manufacturing overhead D. the budgeted manufacturing overhead cost was less than the allocated manufacturing cost. overhead cost. . The correct answer to (3) is B (4) In a normal costing system, the Manufacturing Overhead Control account A. is increased by allocated manufacturing overhead B. is eredited with amounts transferred to Work-in-Process C. is decreased by allocated manufacturing overhead D. is debited with actual overhead costs The correct answer to (4) is D .Explanation / Answer
Ans to 1)
(A) Allocated manufacturing overhead is debited to the work-in process account.
Manufacturing overhead is an integral part of the total cost of goods manufactured. In order to arrive at normal cost of production allocated overhead is debited to the account instead of actual. The difference is known as variance which is absorbed in the income statement.
(B) Completed goods transferred out of the plant is finished inventory which will be credited to work-in process account.
(C) Accumulated depreciation on fixed assets is liability which is reduced from gross fixed assets. It is not an expenditure.
(D) Actual manufacturing overhead is not taken to work-in process account, instead allocated overhead is taken. It has been explained in the beginning.
Ans to 2)
Activity based costing system differs from the traditional system in the treatment of indirect costs.
Activity based system aims at capturing the indirect cost at activity level for more accurate presentation and better control.
All other costs like (A) Direct labour (B) Direct material and (C) Prime costs are directly related to per unit production and hence assigned similary under both the approaches. There is no need to apply judgement in the allocation of direct variable cost per unit.
Ans to 3)
Overallocated manufacturing overhead means that the allocated overhead cost was greater than the actual cost.
The allocation of overhead is done based on pre-determined rate per unit. The budgeted data is used, to arrive at per unit cost, which is adjusted for actual cost incurred, but normal units supposed to be produced. Since "normal units supposed to be produced can differ from actual units produced" the above mentioned difference can arise. Overallocation means allocated overhead is over/more than the actual.
As exlplained, the other three sentences are incorrect.
Ans to 4)
In normal costing system the manufacturing overhead control account is debited with actual overhead costs.
In normal costing the overhead control account is debited with actual cost, allocated cost (per rate estimated cost multiplied by actual units) is transferred to inventory account as cost of production and difference between actual and allocated is variance which is taken to income statement.
Hence all other three explanations are incorrect.
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