MCQ on overhead - Best 32 MCQs
Introduction:
Improve your business acumen with our comprehensive list of 30 MCQ on overhead costs. Learn the fundamental concepts, strategies, and best practices for managing indirect expenses and optimizing your profit margin. Test your knowledge, gain new insights, and boost your professional skills with our practical MCQ guide.
Overhead costs are an important aspect of business accounting. These costs are essential to consider as they help determine the overall profitability of a company. In this article, we will provide 30 multiple-choice questions related to overhead costs with detailed explanations of the answers.
Managing overhead costs is an essential aspect of running a successful business. However, identifying, analyzing, and controlling these expenses can be a challenging task, especially for new entrepreneurs and managers. Overhead costs encompass all the indirect expenses that a company incurs, such as rent, utilities, office supplies, and administrative salaries, among others.
Therefore, understanding the key concepts and strategies related to overhead costs is critical to maintaining a healthy profit margin and achieving long-term sustainability. In this article, we have compiled a list of 30 multiple choice questions (MCQs) that cover the fundamental principles of overhead costs and provide insights into how to manage them effectively. By answering these questions, you can test your knowledge, gain new insights, and enhance your business acumen.
MCQ on Overhead
1 -5 MCQ on Overhead is as follows with explaination of answers.
MCQ. 1 What is overhead cost ?
a. The cost of goods sold
b. The cost of raw materials
c. The cost of indirect expenses
d. The cost of direct labor
Answer: c. The cost of indirect expenses
Explanation: Overhead costs are indirect costs associated with running a business, such as rent, utilities, and administrative expenses.
MCQ. 2 Which of the following is not an example of overhead cost?
a. Salaries of administrative staff
b. Cost of raw materials
c. Rent for the office space
d. Depreciation of equipment
Answer: b. Cost of raw materials
Explanation: Raw materials are a direct cost of producing a product, while overhead costs are indirect expenses related to running the business.
MCQ. 3 Which of the following is a fixed overhead cost?
a. Rent
b. Utility bills
c. Salaries of production staff
d. Materials
Answer: a. Rent
Explanation: Fixed overhead costs are expenses that do not vary with the level of production, such as rent or property taxes.
MCQ. 4 Which of the following is a variable overhead cost?
a. Depreciation of equipment
b. Salaries of administrative staff
c. Materials
d. Property taxes
Answer: c. Materials
Explanation: Variable overhead costs are expenses that change with the level of production, such as the cost of materials or labor.
MCQ. 5 What is the formula for calculating overhead rate?
a. Overhead rate = Total overhead costs / Direct labor hours
b. Overhead rate = Direct labor costs / Total overhead costs
c. Overhead rate = Total direct costs / Direct labor hours
d. Overhead rate = Total indirect costs / Direct labor hours
Answer: a. Overhead rate = Total overhead costs / Direct labor hours
Explanation: The overhead rate is the amount of overhead costs applied to each unit of production and is calculated by dividing total overhead costs by the number of direct labor hours.
6-10 MCQ on Overhead is as follows with explaination of answers.
MCQ. 6 Which of the following is an example of an overhead allocation base?
a. Direct materials
b. Direct labor
c. Machine hours
d. Inventory costs
Answer: c. Machine hours
Explanation: An overhead allocation base is a measure of activity that is used to allocate overhead costs, such as machine hours or direct labor hours.
MCQ. 7 Which of the following is an example of a step-variable cost?
a. Rent
b. Utility bills
c. Administrative salaries
d. Equipment maintenance
Answer: d. Equipment maintenance
Explanation: A step-variable cost is an expense that increases in steps as activity levels increase, such as the cost of equipment maintenance, which increases when additional machines are added.
MCQ. 8 Which of the following is an example of a committed cost?
a. Advertising
b. Property taxes
c. Training
d. Bonuses
Answer: b. Property taxes
Explanation: Committed costs are expenses that cannot be easily changed, such as property taxes or rent.
MCQ. 9 Which of the following is an example of a discretionary cost?
a. Rent
b. Salaries
c. Advertising
d. Property taxes
Answer: c. Advertising
Explanation: Discretionary costs are expenses that can be easily changed, such as advertising or training.
MCQ. 10 Which of the following is an example of a direct cost?
a. Rent
b. Utilities
c. Raw materials
d. Property taxes
Answer: c. Raw materials
Explanation: Direct costs are expenses that can be easily traced to a specific product, such as the cost of raw materials used in manufacturing.
11 -15 MCQ on Overhead is as follows with explaination of answers.
MCQ. 11 Which of the following is an example of a period cost?
a. Depreciation of equipment
b. Raw materials
c. Direct labor
d. Advertising
Answer: d. Advertising
Explanation: Period costs are expenses that are not directly tied to the production process, such as advertising or administrative expenses.
MCQ. 12 Which of the following is an example of a product cost?
a. Rent
b. Salaries of administrative staff
c. Depreciation of equipment
d. Utilities
Answer: c. Depreciation of equipment
Explanation: Product costs are expenses that are directly related to the production of goods or services, such as the cost of equipment or materials used in manufacturing.
MCQ. 13 What is the difference between direct labor and indirect labor?
a. Direct labor is fixed, while indirect labor is variable.
b. Direct labor is easily traceable to a specific product, while indirect labor is not.
c. Direct labor is indirect, while indirect labor is direct.
d. Direct labor is a period cost, while indirect labor is a product cost.
Answer: b. Direct labor is easily traceable to a specific product, while indirect labor is not.
Explanation: Direct labor is the cost of labor that is directly involved in the production of a specific product, while indirect labor is the cost of labor that is not directly involved in the production process, such as the salaries of administrative staff.
MCQ. 14 Which of the following is an example of an indirect cost?
a. Direct materials
b. Direct labor
c. Rent
d. Depreciation of equipment
Answer: c. Rent
Explanation: Indirect costs are expenses that are not directly tied to the production process, such as rent or utilities.
MCQ. 15 What is the difference between fixed and variable costs?
a. Fixed costs change with the level of production, while variable costs do not.
b. Fixed costs are easily traceable to a specific product, while variable costs are not.
c. Fixed costs are direct, while variable costs are indirect.
d. Fixed costs do not change with the level of production, while variable costs do.
Answer: d. Fixed costs do not change with the level of production, while variable costs do.
Explanation: Fixed costs are expenses that do not change with the level of production, such as rent or property taxes, while variable costs are expenses that change with the level of production, such as the cost of materials or labor.
16 -20 MCQ on Overhead is as follows with explaination of answers.
MCQ. 16 Which of the following is an example of a direct material?
a. Rent
b. Salaries of administrative staff
c. Depreciation of equipment
d. Wood used to build furniture
Answer: d. Wood used to build furniture
Explanation: Direct materials are materials that are directly used in the production of a specific product, such as the wood used to build furniture.
MCQ. 17 Which of the following is an example of a direct labor cost?
a. Rent
b. Salaries of administrative staff
c. Wages paid to a machine operator
d. Property taxes
Answer: c. Wages paid to a machine operator
Explanation: Direct labor costs are the wages paid to employees who are directly involved in the production process, such as a machine operator.
MCQ. 18 Which of the following is an example of a fixed cost?
a. Cost of raw materials
b. Depreciation of equipment
c. Wages paid to production staff
d. Cost of utilities
Answer: b
MCQ. 19 Which of the following is an example of a variable cost?
a. Rent
b. Property taxes
c. Cost of raw materials
d. Depreciation of equipment
Answer: c. Cost of raw materials
Explanation: Variable costs are expenses that change with the level of production, such as the cost of raw materials used in manufacturing.
MCQ. 20 What is the formula for calculating the total manufacturing cost?
a. Direct materials + direct labor
b. Direct materials + direct labor + manufacturing overhead
c. Direct labor + manufacturing overhead
d. Manufacturing overhead
Answer: b. Direct materials + direct labor + manufacturing overhead
Explanation: The total manufacturing cost is the sum of the direct materials cost, the direct labor cost, and the manufacturing overhead cost.
21-25 MCQ on Overhead is as follows with explaination of answers.
MCQ. 21 What is the formula for calculating the predetermined overhead rate?
a. Estimated total manufacturing overhead / estimated total amount of the allocation base
b. Actual total manufacturing overhead / actual total amount of the allocation base
c. Estimated total manufacturing overhead / actual total amount of the allocation base
d. Actual total manufacturing overhead / estimated total amount of the allocation base
Answer: a. Estimated total manufacturing overhead / estimated total amount of the allocation base
Explanation: The predetermined overhead rate is calculated by dividing the estimated total manufacturing overhead by the estimated total amount of the allocation base.
MCQ. 22 What is the purpose of a cost driver?
a. To allocate indirect costs to specific products or services
b. To track the cost of direct materials and direct labor
c. To calculate the cost of manufacturing overhead
d. To calculate the total manufacturing cost
Answer: a. To allocate indirect costs to specific products or services
Explanation: A cost driver is a factor that causes or influences the cost of an activity, and is used to allocate indirect costs to specific products or services.
MCQ. 23 Which of the following is an example of a cost driver for the cost of electricity?
a. Number of employees
b. Square footage of the building
c. Number of machines in use
d. None of the above
Answer: b. Square footage of the building
Explanation: The square footage of the building is an example of a cost driver for the cost of electricity, as the amount of electricity used is likely to be proportional to the size of the building.
MCQ. 24 What is the difference between actual overhead and applied overhead?
a. Actual overhead is the amount of overhead allocated to a specific product, while applied overhead is the actual amount of overhead incurred.
b. Actual overhead is the amount of overhead incurred, while applied overhead is the amount of overhead allocated to a specific product.
c. Actual overhead and applied overhead are the same thing.
d. Actual overhead is a fixed cost, while applied overhead is a variable cost.
Answer: b. Actual overhead is the amount of overhead incurred, while applied overhead is the amount of overhead allocated to a specific product.
Explanation: Actual overhead is the amount of overhead costs that were actually incurred during a specific period, while applied overhead is the amount of overhead costs allocated to a specific product based on the predetermined overhead rate.
MCQ. 25 What is overapplied overhead?
a. The difference between actual overhead and applied overhead, when actual overhead is greater than applied overhead.
b. The difference between actual overhead and applied overhead, when applied overhead is greater than actual overhead.
c. The amount of overhead that is allocated to a specific product.
d. The amount of overhead that is not allocated to any specific product.
Answer: a. The difference between actual overhead and applied overhead, when actual overhead is greater than applied overhead.
Explanation: Overapplied overhead occurs when the amount of overhead allocated to a specific product based on the predetermined overhead rate is greater than the actual overhead costs incurred.
26-32 MCQ on Overhead is as follows with explaination of answers.
MCQ. 26 What is underapplied overhead?
a. The difference between actual overhead and applied overhead, when actual overhead is greater than applied overhead.
b. The difference between actual overhead and applied overhead, when applied overhead is greater than actual overhead.
c. The amount of overhead that is allocated to a specific product.
d. The amount of overhead that is not allocated to any specific product.
Answer: b. The difference between actual overhead and applied overhead, when applied overhead is greater than actual overhead.
Explanation: Underapplied overhead occurs when the amount of overhead allocated to a specific product based on the predetermined overhead rate is less than the actual overhead costs incurred.
MCQ. 27 What is the purpose of the journal entry to dispose of underapplied or overapplied overhead?
a. To allocate the difference between actual overhead and applied overhead to specific products.
b. To adjust the balance in the Manufacturing Overhead account to reflect the actual amount of overhead costs incurred.
c. To close the Manufacturing Overhead account at the end of the period.
d. To allocate the difference between actual overhead and applied overhead to the Cost of Goods Sold account.
Answer: b. To adjust the balance in the Manufacturing Overhead account to reflect the actual amount of overhead costs incurred.
Explanation: The journal entry to dispose of underapplied or overapplied overhead is used to adjust the balance in the Manufacturing Overhead account to reflect the actual amount of overhead costs incurred.
MCQ. 28 What is the purpose of the Cost of Goods Manufactured schedule?
a. To calculate the total cost of goods sold during a specific period.
b. To calculate the cost of goods manufactured during a specific period.
c. To calculate the total manufacturing cost during a specific period.
d. To calculate the total cost of goods manufactured and sold during a specific period.
Answer: b. To calculate the cost of goods manufactured during a specific period.
Explanation: The Cost of Goods Manufactured schedule is used to calculate the cost of goods manufactured during a specific period, which includes the total cost of direct materials, direct labor, and manufacturing overhead allocated to the products that were completed during the period.
MCQ. 29 What is the purpose of the Cost of Goods Sold schedule?
a. To calculate the total cost of goods sold during a specific period.
b. To calculate the cost of goods manufactured during a specific period.
c. To calculate the total manufacturing cost during a specific period.
d. To calculate the total cost of goods manufactured and sold during a specific period.
Answer: a. To calculate the total cost of goods sold during a specific period.
Explanation: The Cost of Goods Sold schedule is used to calculate the total cost of goods sold during a specific period, which includes the cost of the products that were sold and delivered to customers during the period.
MCQ. 30 What is the predetermined overhead rate?
a. The actual amount of overhead costs incurred during a specific period.
b. The estimated amount of overhead costs to be incurred during a specific period.
c. The actual amount of overhead costs allocated to a specific product.
d. The estimated amount of overhead costs to be allocated to a specific product.
Answer: d. The estimated amount of overhead costs to be allocated to a specific product.
Explanation: The predetermined overhead rate is calculated by dividing the estimated amount of overhead costs to be incurred during a specific period by the estimated amount of the allocation base (such as direct labor hours or machine hours) for the same period. It is used to allocate overhead costs to specific products based on the estimated usage of the allocation base.
MCQ. 31 What is the difference between variable overhead and fixed overhead?
a. Variable overhead costs vary with changes in the level of production, while fixed overhead costs remain constant regardless of the level of production.
b. Variable overhead costs are direct costs of production, while fixed overhead costs are indirect costs of production.
c. Variable overhead costs are associated with direct materials, while fixed overhead costs are associated with direct labor.
d. Variable overhead costs are incurred on a per-unit basis, while fixed overhead costs are incurred on a total basis.
Answer: a. Variable overhead costs vary with changes in the level of production, while fixed overhead costs remain constant regardless of the level of production.
Explanation: Variable overhead costs are costs that vary with changes in the level of production, such as indirect materials and supplies, while fixed overhead costs are costs that remain constant regardless of the level of production, such as rent and property taxes.
MCQ. 32 How does the use of a multiple predetermined overhead rate system differ from a single predetermined overhead rate system?
a. A multiple predetermined overhead rate system uses different overhead rates for different types of products, while a single predetermined overhead rate system uses a single overhead rate for all products.
b. A multiple predetermined overhead rate system is only used in service industries, while a single predetermined overhead rate system is used in manufacturing industries.
c. A multiple predetermined overhead rate system is more accurate than a single predetermined overhead rate system.
d. A multiple predetermined overhead rate system is more simple than a single predetermined overhead rate system.
Answer: a. A multiple predetermined overhead rate system uses different overhead rates for different types of products, while a single predetermined overhead rate system uses a single overhead rate for all products.
Explanation: A multiple predetermined overhead rate system uses different overhead rates for different types of products, which is more accurate because different products may have different usage of the allocation base. A single predetermined overhead rate system uses a single overhead rate for all products, which is simpler but less accurate.
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