Pop Quiz Costing 4

Which statement correctly outlines the impact of over absorption of overheads on profits?

• Profits will be decreased as it is more likely that the selling price charged to the customer will cover all the costs incurred by the business that year

• Profits will be increased as it is less likely that the selling price charged to the customer will cover all the costs incurred by the business that year

• Profits will be decreased as it is less likely that the selling price charged to the customer will cover all the costs incurred by the business that year

• Profits will be increased as it is more likely that the selling price charged to the customer will cover all the costs incurred by the business that year

Allocation of overheads takes place when the overhead cost can be identified with a particular department or is unique to a department.

• True

• False

What is NOT an example of an overhead cost?

• Rent of premises

• Direct materials

• Power costs

• Depreciation

The following are the reasons of reapportion OH cost from service to production department, EXCEPT

• To help determine the cost base for cost-plus pricing

• To help measure profitability in operating departments

• Only production departments produce goods that will ultimately be sold

• Service department does not incurred any cost

______ method: The service centre costs are apportioned to production departments only