What is Overhead Costing?

Overhead is the cost incurred in the course of making a product, providing a service, or running a department, but which cannot be traced directly and in full to the product, service, or department.

What are the two types of overhead costs?

Fixed overhead includes expenses that are the same amount consistently over time. These can include rent and Depreciation on Fixed Assets. Variable overhead expenses include costs that may fluctuate over time such as shipping costs.

What are overhead expenses?

Overhead expenses are all costs on the income statement except for direct labor, direct materials, and direct expenses. Overhead expenses include accounting fees, advertising, insurance, interest, legal fees, labor burden, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities.

What would not be used as the basis for allocating expenses to departments?

E-mail would not be used as the basis for allocating expenses to the department.

What is an example of overhead cost in accounting?

One example of an overhead cost in accounting is Depreciation. This is the cost incurred to gradually wear out or use up a fixed asset like a machine over its useful life. Other examples of overhead costs include insurance, property taxes, and rent. Generally, overhead costs cannot be directly linked to the production of a good or service. Instead, they are incurred to run the business as a whole.

Overhead Costing MCQ Quiz With Answers

Multiple choice questions (MCQs) help students to clarify key concepts and test their knowledge on a particular subject.

In this article, we have prepared overhead costing MCQs, which can serve as useful interview and exam preparation.

In this test, each of the 12 MCQs has 4 possible answers, and you need to choose the correct response.

If you can answer every question correctly, it will be great preparation for your exams, interviews, and professional work.

1. The wages paid to the maintenance department workers who perform repair work (mainly for the production departments but also on the vehicles in the distribution department) should be charged as:

Service costs
Distribution costs
General costs
Production costs

2. Which of the following costs of management is likely to have the least control?

Machine breakdown costs
Wage costs
Advertising costs
Buildings insurance costs

3. Which of the following costs is most likely to have a cost behavior pattern described as follows: initially, a fixed cost up to an activity level of 1,000 units, with a variable cost thereafter that falls from $0.10 to $0.08 per unit at 2,000 units?

Photocopying equipment with a fixed hire charge plus a reducing charge per unit.
Payment of wages, which is fixed for a minimum output quantity after which a bonus per unit is paid which reduces above a certain output level to a smaller bonus per unit.
Royalty payment per unit, which reduces after 2,000 units.
Material cost of $0.12 per unit for the first 1,000 units, followed by $0.10 per unit up to 2,000 units and $0.08 per unit thereafter.

4. Which of the following is most likely to be an allocated production overhead cost to the finishing cost center?

Factory rates
Salary of the finishing cost center supervisor
Power used on finishing cost center machines
Production manager's salary

5. Which of the following is a valid classification of the salary paid to the foreman in charge of the packing department?

Indirect departmental cost
Direct product cost
Direct departmental cost
Service department cost

6. Which of the following methods of charging service cost centers is compatible with controlling the efficiency of the service within the service cost center?

Does not charge users
Charges users with total actual cost incurred
Charges users with total (full) absorption cost
Charges users with the opportunity cost of the service

7. Non-production overheads are usually omitted from stock valuation for the following reason:

They are outside the control of production management
They are fixed period costs
They are incurred after the stock has been brought to its present location and condition
They cannot be identified with individual products

8. Non-production overheads are usually omitted from stock valuation for the following reason:

They are outside the control of production management
They are fixed period costs
They are incurred after the stock has been brought to its present location and condition
They cannot be identified with individual products