Multiple Choice
Which of the following costing methods charges all manufacturing costs, including both variable and fixed manufacturing overhead, to its products?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following statements about manufacturing overhead costs is NOT correct?
A
Depreciation on factory equipment is considered part of manufacturing overhead.
B
Manufacturing overhead is directly traceable to specific products.
C
Manufacturing overhead is applied to products using a predetermined overhead rate.
D
Manufacturing overhead includes indirect materials, indirect labor, and other factory costs.
Verified step by step guidance1
Understand the concept of manufacturing overhead: Manufacturing overhead includes all indirect costs associated with the production process, such as indirect materials, indirect labor, and other factory costs like utilities, maintenance, and depreciation on factory equipment.
Review the statement 'Depreciation on factory equipment is considered part of manufacturing overhead': This is correct because depreciation on factory equipment is an indirect cost related to production.
Analyze the statement 'Manufacturing overhead is directly traceable to specific products': This is NOT correct because manufacturing overhead costs are indirect and cannot be directly traced to specific products. Instead, they are allocated to products using a predetermined overhead rate.
Evaluate the statement 'Manufacturing overhead is applied to products using a predetermined overhead rate': This is correct. Manufacturing overhead is allocated to products based on a predetermined rate, which is calculated using estimated overhead costs and an allocation base (e.g., machine hours or labor hours).
Confirm the statement 'Manufacturing overhead includes indirect materials, indirect labor, and other factory costs': This is correct because these are all components of manufacturing overhead.
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