TRUE/FALSE QUESTIONS

False 1. Cost Allocation cannot be made across time periods or within a single
time period.

*This question is FALSE because Cost Allocation can be made across time
periods or within a single time period.

False 2. The formula for the Predetermined Overhead Rate is multiplying the
Volume of Specified Level to the Total Budgeted Overhead Cost at a
Specified Activity Level.

*This question is FALSE because Total Budgeted Overhead Cost at a Specified

Activity Levels should be divided by the Volume of Specified Level for us to
get the Predetermined Overhead Rate.

False 3. Actual and applied overhead are recorded in a different general

ledger account.

*This question is FALSE because both actual and applied overhead are
recorded in a single general ledger account.

False 4. Variable and Fixed Overhead may be recorded either in a single

account or in separate accounts, although separate accounts do not
provide better information to managers.

*This question is FALSE because having separate accounts for Variable and
Fixed Overhead is much easier and provides better information to managers.

False 5. Overhead is applied to Finished Goods Inventory as production

occurs, as measured by the activity identified in the denominator in
the predetermined OH rate formula.

*This question is FALSE because Overhead is applied to Work in Process

Inventory.

False 6. Overhead accounts are not temporary accounts.

*This question is FALSE because Overhead accounts are temporary accounts

and should be closed at the end of the period.

True 7. Two primary causes of underapplied or overapplied capacity

measures are: the difference between budgeted and actual costs
and the difference in the activity level chosen to compute the
 predetermined OH rate and the actual activity level experience.

True 8. Underpplied or overapplied overhead must be closed at year-end

because a single year’s activity level was used to set the
predetermined overhead rates.

False 9. Normal Capacity is a short-run concept that represents the firm’s

anticipated activity level for the coming period based on projected
product demand.

*This question is FALSE because the statement best describes the Expected
Capacity.

True 10. The straight line formula is: y= a + bX

False 11. An overhead is underapplied if the overhead applied to Work in

Process Inventory is greater than the actual overhead incurred.

*This question is FALSE because if an overhead is underapplied, it means that

the overhead applied to Work in process Inventory is less than the actual
overhead incurred.

True 12. If the amount of applied overhead differs materially (significantly)

from actual overhead costs, it should be prorated among the
accounts in which applied overhead resides: Work in Process
Inventory, Finished Goods Inventory, and Cost of Goods Sold.

True 13. Reducing theoretical capacity by ongoing, regular operating

interruptions (such as holidays, downtime, and start-up time) provides
the practical capacity that could be achieved during regular working
hours.

False 14. A mixed cost does not contain both a variable and a fixed
component.

*This question is FALSE because mixed costs contain both variable and fixed
components.

True 15. To simplify estimation of costs, accountants typically assume that costs
are linear rather than curvilinear. Because of this assumption, the
general formula for a straight line can be used to describe any type
of cost within a relevant range of activity.

False 16. Only one method can be used by manufacturing firms to value units
of product for accounting purposes.

*This question is FALSE because there are two methods that can be used by
 manufacturing firms to value units or products for accounting purposes and
these are: absorption and variable costing.

False 17. Absorption or Full Costing is for internal use.

*This question is FALSE because absorption costing is for external use.

True 18. Predetermined Overhead Rate allows overhead to be assigned

during the period, fulfilling the matching principle.

True 19. First step to prepare a flexible budget is to separate mixed costs into
variable and fixed elements.

False 20. When expected capacity is greater than normal capacity, it may
result in underapplied overhead and higher product cost.

*This question is FALSE because it may result in underapplied overhead and

higher product cost if normal capacity is greater than expected capacity.