1.

In a traditional job-order cost system, the issuance of supplies to a production department increases
 Factory overhead control.
 As overhead is incurred, factory overhead control is debited, and accounts payable, stores, etc., are
credited. When overhead is applied, work-in-process is debited, and factory overhead applied is
credited. The difference between the debited and credited amounts is over- or underapplied
overhead.

2. In a job-order cost system, the application of factory overhead is usually reflected in the general
ledger as an increase in
 Work-in-process control.
 The entry to record the application of factory overhead to specific jobs is to charge WIP control and
credit factory overhead applied (or factory overhead control) using a predetermined overhead rate.
The effect is to increase the WIP control account.

3. A direct labor overtime premium should be charged to a specific job when the overtime is caused by
the
 Customer's requirement for early completion of the job.
 A direct labor overtime premium is ordinarily an indirect cost, charged to overhead, and allocated to
all jobs. The association of overtime with a specific job may be attributable solely to random
scheduling and an abnormally large production volume, a condition affecting all jobs. However, if
overtime directly results from the demands of a specific job, it is a direct cost of that job.

4. Units of production is an appropriate method of assigning overhead when

 Only one product is manufactured.
 Assigning overhead on the basis of the number of units produced is usually not appropriate. Costs
should be assigned on the basis of some plausible relationship between the cost object and the
incurrence of the cost, preferably cause and effect. Overhead costs, however, may be incurred
regardless of the level of production. Nevertheless, if a firm manufactures only one product, this
method may be acceptable because all costs are to be charged to the single product.

5. Application rates for factory overhead best reflect anticipated fluctuations in sales over a cycle of
years when they are computed under the concept of
 Normal capacity.
 Normal capacity is the output level that will approximate demand over a period of years that
includes seasonal, cyclical, and trend variations. Deviations in one year will be offset in other years.

6. Cox Company found that the differences in product costs resulting from the application of
predetermined overhead rates rather than actual overhead rates were immaterial even though actual
production was substantially less than planned production. The most likely explanation is that
 Overhead was composed chiefly of variable costs.
 Total variable overhead costs change in proportion to changes in the activity level. Total fixed costs
do not. For the difference between applied and actual overhead to be immaterial when actual
production is substantially less than planned production, overhead costs must be composed chiefly
of variable costs.