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The whole discussion is divided into 2 parts, Here if the first part.
NOTE: Freight inward is a direct expense, if the goods are handled by an outside carrier
whose charges may be related to individual units/group of Unit.
Q4. In modern industrial undertakings, overheads include various kinds of direct costs.
(a) True
(b) False
NOTE: Overhead is the aggregate of indirect material costs, indirect labour cost and
indirect expenses which cannot be conveniently identified with and directly allocated to a
particular cost centre or cost object in an economically feasible way. It is also known as
indirect cost. For example: rent, rates, insurance of factory, etc.
Q5. Which of the following shows the correct number of bases of overheads
classification?
(a) Two
(b) Three
(c) Four
(d) Five
NOTE: Overheads are classified into 3 types which include function-wise classification,
behavior – wise classification and element –wise classification.
Functional-wise classification: Production overhead, administrative
overhead, selling overhead, distribution overhead.
Behavior- wise classification: Fixed overhead, variable overhead, semi-
variable overhead
Element-wise classification: Indirect materials, indirect labour, indirect
expenses.
Q6. In the modern Industrial undertakings, manufacturing overheads include all direct
costs incurred in the running of manufacturing division of the factory.
(a) True
(b) False
NOTE: Manufacturing overheads include all indirect costs i.e. indirect materials, indirect
labour and indirect expenses incurred in manufacturing and production department.
Q7. The classification of overheads expenditure depends upon the nature of the product
or service.
(a) True
(b) False
NOTE: Based on the behavior patterns, overhead are classified into fixed overheads,
variable overheads and semi-variable overheads.
Q9. In large factories, standing order numbers help in grouping smaller and similar
indirect expenses.
(a) True
(b) False
NOTE: Standing order number system is the system under which a number is allotted to
each item of expense for the purpose of identification. So in the large factories it becomes
easy to classify the indirect expenditure in the groups.
The following are the methods used to allot the identification code under standing order
number system:
(1) Numerical coding: Under this system, a fixed number is allotted
(2) Mnemonic method: This system uses alphabets and letters to help the memory.
For example: AD as Administration
(3) Decimal method: Under this system, a whole number like 1.1 or 3.2.1 is allotted
for the head of the expenditure or master group while the decimals are allotted to
the primary or secondary items.
(4) Field method: Under this method, codes are used as numeric in nature and each
code number is consists of nine digits. For example: in code 20 130 02 06
whereas 20 stands for variable costs, 130 stands for idle time etc.
(5) Combination of symbol and numbers: Under this method, a combination of
symbol alphabet and a number is used as code. For example: M1 stands for
Maintenance of building.
Q10. The cost of indirect materials purchased in a month from which of the following
account?
(a) Wages account
(b) Cost ledger control account
(c) Stores ledger control account
(d) Factory overhead control account
NOTE: At the end of each month, the total of indirect materials is charged or debited
from factory overhead control account and credited to stores ledger control account.
Q11. At the end of the month, the total of indirect expenses is credited to which of the
following account?
(a) Wages account
(b) Cost ledger control account
(c) Stores ledger control account
(d) Factory overhead control account
NOTE: At the end of the period, the total of factory overheads of indirect expenses
would be debited to factory overhead control account and credited to the cost ledger
control account.
Q12. The location of various departments is fixed as per the sequence of operation.
(a) True
(b) False
NOTE: A factory is divided into parts or sub-division. These sub-divisions are done in
such a manner so that every department represents a division of activity of the
organization. For example: Repairs department, power house department, tools
department etc.So the sequence of operations is taken into consideration while
determining the location of various departments.
Q13. In how many broad categories are the departments of a factory divided?
(a) 2
(b) 3
(c) 4
(d) 5
NOTE: The departments in a factory can be broadly categorized into 3 types namely:
producing or manufacturing departments, service departments and partly producing
departments.
Manufacturing Department: is depends upon the nature of the industry,
type of the work performed & the size of the factory.
Service Department: is not directly engaged in production but render a
special service for the benefit of other departments
Partly production department: is dealing with both manufacturing and
service department.
Q14. How many primary bases are there for apportioning the items of overhead
expenses?
(a) Seven
(b) Eight
(c) Nine
(d) Ten
Q15. How many criteria for the secondary distribution of overheads are there for
apportioning the items of overheads expenses?
(a) Four
(b) Five
(c) Six
(d) Seven
NOTE:
Service or used method: where overheads are distributed as per the basis
of service rendered.
Analysis or survey method: is the method where overhead are apportioned
to measure the benefit received from each department.
Ability to pay
Efficiency or incentive method: is the method where overhead
apportionment is done as per the production target.
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Q17. Which of the following methods are used for dealing with inter-services department
transfer?
(a) Simultaneous equations methods
(b) Repeated distribution method
(c) Concentric circled method
(d) Linear equations method
NOTE: When there is 2 or more service department and the services are rendered to each
other department. This is called Inter-service department transfer. There are 3 methods
for dealing, they are as follows:
Simultaneous equation method: where cost of service department is
ascertained and then distributed among the production department.
Repeated distribution method: Under this method, costs are apportioned
over and over other department such as production as well as service
department until the costs is exhausted.
Trial & Error method: where is the cost of one service department is
apportioned to other service department.
Q18. Pre-determined overhead rate is an ideal method for the calculation of the rate in the
situation of cost estimating and competitive pricing.
(a) True
(b) False
NOTE: Pre-determined overhead rate = Budget overhead for the period/ budget base for
the period
Q19. There is one common overhead rate used for the whole factory in blanket overhead
rate method.
(a) True
(b) False
NOTE: Blanket overhead rate method is used only on those factories where only one
major product is produced or several products but passes through the entire department
and takes equal time in the entire department.
Blanket overhead rate = Overhead cost for the entire factory/ base for the period
Q17. Which of the following is used as a base in method of percentage of direct material
cost for the absorption of factory overheads?
(a) The cost of direct materials used in the manufacture of a product
(b) The cost of indirect materials used in the manufacture of a product
(c) The cost of direct and indirect materials
(d) The cost of direct and indirect materials and direct
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