Question

A. Cost drivers

I. are activities that cause costs to increase as the activity increases

II. can be financial as well as nonfinancial

(A) I only

(B) II only

(C) Both I and II

(D) Neither I nor II

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B. Sum Manufacturing is attempting to calculate total overhead applied. For the current year, budgeted direct labor hours were 20,000 hours. In addition, budgeted factory overhead was $75,000. Actual costs and hours for the year were as follows: Direct labor hours $18,000 Direct labor costs $103,000 Machine hours $30,000 For a particular job, 1,200 direct labor hours were used. Using direct labor hours as the cost driver, what amount of overhead should be applied to this job?

(A) $5,190

(B) $4,500

(C) $5,730

(D) $6,500

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C. In developing a predetermined factory overhead application rate for use in a process costing system, which of the following could be used in the numerator?

I. Actual factory overhead

II. Estimated factory overhead

(A) I only

(B) II only

(C) Both I and II

(D) Neither I nor ---------------------------------------

Please explain your answers. thank you.

Answer 1

Question A. Option (A). I only

Cost drivers are activities that cause costs to increase as the activity increases.

Question B. Option (B) $4,500

Predetermined Overhead rate = $75,000/20,000 labor hours = $3.75

Overhead should be applied to job = 1,200 labor hours X $3.75 = $4,500

Question C. Option (B). II only

In developing a predetermined factory overhead application rate for use in a process costing system, Estimated factory overhead could be used in the numerator and total activity base could be used in denominator