TRUE or FALSE

FALSE 1. A Factory overhead includes all factory costs in the manufacturing process.

TRUE 2. Factory overhead is also known as factory burden.

TRUE 3. Indirect materials are materials not directly used in the production of goods.

TRUE 4. Overtime premiums of factory employees are an example of factory overhead.

FALSE 5. Factory overhead is charged to expense when the product is produced.

TRUE 6. Classifying factory overhead costs based on behavior is one way to control such costs.

TRUE 7. The allocation bases should be related to the functions represented by the factory overhead
costs being applied.

TRUE 8. The predetermined factory overhead rate is determined at the beginning of each period.

TRUE 9. The Departmentalized overhead rate is more accurate product costing when a company
produces different products that require a variety of processes.

FALSE 10. The Normal Costing system determined factory overhead costs as they occur
simultaneously with the manufacturing operation, but the total of these costs is known only as the
operation has been completed.

FALSE 11. Cleaning supplies used in the factory are an example of direct materials.

TRUE 12. Normal costing system accumulates factory overhead costs based on a predetermined
overhead rate.

TRUE 13. Departmentalized overhead rate is more appropriate, if the services provided by several
departments are highly differentiated.

TRUE 14. Budget is a detailed plan, expressed in quantitative terms, about business operations for a
specific period.

TRUE 15. Actual costing is also known as historical costing.

FALSE 16. Indirect labor is a labor cost of those employees who are directly associated with the
production process.

FALSE 17. Plant-wide method to determined overhead rate is expensive and difficult to apply.

TRUE 18. Budgeting is the process of coming up with a budget.

TRUE 19. Factor overhead cost requires further analysis compared to direct materials and direct labor
because of its complexity.

TRUE 20. Plant-wide uses single overhead rate to allocate all of its factory overhead costs to jobs,
products or departments.

TRUE 21. Plant-wide overhead rate is appropriate to use, if the company manufactures similar products.
TRUE 22. Departmentalization of factory overhead provides more accurate costing of jobs and
products because it uses different overhead rates for charging factory overhead costs..

TRUE 23. Indirect departmental expenses are costs that are allocated to other departments that
indirectly benefited the said costs.

FALSE 24. The sewing department is an example of servicing department.

TRUE 25. Direct Departmental expenses are costs that can be immediately charged to a particular
department because they are directly traceable with the department that benefited the said costs.

TRUE 26. Producing department is responsible in the actual manufacture of products.

FALSE 27.The purchasing department is an example of producing department.

FALSE 28. Factory overhead includes direct materials and direct labor.

TRUE 29. Expected capacity refers to the level based on expected capacity utilization for the
budget period.

TRUE 30. Theoretical capacity is a production in full efficiency.

TRUE 31. Practical capacity refers to plant or department’s capability to produce with an
allowance for internal factors.

FALSE 32. Ideal capacity considers operating interruption such as machine

breakdowns and holiday shutdowns.

FALSE 33. Practical capacity is also known as ideal capacity.

TRUE 34. Normal capacity is a capacity driven by customers or business demand and not by
maximum capacity.

TRUE 35. Normal capacity is equal to the practical capacity less loss of productive capacity due to
external factors.

TRUE 36. Direct method allocates service department cost directly to the
revenue-producing/operating areas without recognition of service provided among the service
departments.

TRUE 37. Reciprocal method is the most accurate among the three methods.

FALSE 38. The direct method is the simplest and the most accurate method compared to other
service allocation methods.

FALSE 39. Step method allocation starts with the service department that provides the least
number of services to other service departments.

FALSE 40. If the factory overhead variance is material, it is closed to Cost of Goods Sold Account.

TRUE 41. Spending variance occurs when the actual amount of factory overhead incurred in the
period is different from the standard amount that had been budgeted.
TRUE 42. Overhead variances do not exist when actual costing is used.

TRUE 43. A predetermined overhead rate is calculated using the budgeted overhead cost and budgeted
activity.

FALSE 44. Actual costing requires predetermined overhead rates.

TRUE 45. Under the step down method, all service department costs are eventually allocated to
production departments.

TRUE 46. The order in which service department costs are allocated is important, under step-
down method.

TRUE 47. After service department’s cost have been allocated to other departments, no costs are
re-circulated back to that service department, under step down method.

TRUE 48. The advantage of actual costing over normal costing is that the company need not
forecast the level of productive activity for the year.

TRUE 49. The direct method ignores the fact that some service departments provide service to
other service departments.

FALSE 50. The term over-applied is used in actual costing.

FALSE 51. Normal costing incomes are less than actual costing income.

FALSE 52. When allocating service department costs, companies should use actual costs rather
than budgeted costs, and separate rates for variable and fixed costs.

FALSE 53. Under-applied overhead indicates inefficient operations.