Quiz on Absorption of Production Overheads

What are direct costs?

• Costs that cannot be traced to a cost unit

• Costs that can be conveniently identified with a cost unit

• Costs that are always fixed

• Costs that are incurred in non-manufacturing activities

What is the total of indirect costs known as?

• Variable costs

• Direct costs

• Overheads

• Prime cost

Which of the following is NOT a type of overhead?

• Administrative overheads

• Direct material costs

• Selling overheads

• Manufacturing overheads

What is the purpose of overhead absorption?

• To determine the selling price of products

• To charge manufacturing overheads to cost units

• To calculate profit margins

• To allocate direct costs to products

What does OAR stand for?

• Overhead Assessment Ratio

• Operational Activity Rate

• Overhead Absorption Rate

• Overhead Allocation Rate

Which base is most commonly used for overhead absorption?

• Sales volume

• Time

• Cost

• Output

What happens when absorbed overheads exceed actual overheads?

• Balanced overheads

• Allocated overheads

• Under-absorbed overheads

• Over-absorbed overheads

How is the overhead absorption rate (OAR) calculated?

• Total actual overheads divided by total units produced

• Total budgeted production overheads divided by total budgeted units of base used

• Total direct costs divided by total indirect costs

• Total production costs divided by total sales

What is the treatment of non-manufacturing overheads?

• Charged to products

• Recorded as period costs

• Included in prime costs

• Ignored in financial statements

In the context of absorption costing, what is a cost unit?

• A measure of total costs

• A specific product or service

• A type of overhead

• A department within a company