Question

1. A cost that changes in total as output changes is a variable cost.

   True

   False

1. Managerial judgment is critically important in determining cost behavior.

   True

   False

1. The predetermined overhead rate is calculated at the beginning of the year by dividing the total estimated annual overhead by the total estimated level of cost driver

   True

   False

1. If actual overhead is greater than applied overhead, the variance is called underapplied overhead.

   True

   False

1.   The direct method of allocation recognizes all interactions among support departments.

   True

   False

Answer 1

A cost that changes in total as output changes is a variable cost.

Answer---------True

.

Variable cost changes because it is incurred with every unit produced. Fixed cost is that one which remains same in total at all level.

Managerial judgment is critically important in determining cost behavior.

Answer---------True

The predetermined overhead rate is calculated at the beginning of the year by dividing the total estimated annual overhead by the total estimated level of cost driver.

Answer---------True.

This predetermined overhead rate is multiplied by actual cost driver used to calculate Overhead applied.Given below is an example where Machine Hours is used as a cost driver.

Budgeted Factory Overheads	$ 3,960,000
Budgeted Machine Hours	220,000
Predetermined Overhead rate for fixed overheads	$ 18.00
Predetermined Overhead rate	$ 18.00
Actual Machine hours	$ 83.00
Overheads Applied	$ 1,494

.

If actual overhead is greater than applied overhead, the variance is called underapplied overhead.

Answer---------True

The direct method of allocation recognizes all interactions among support departments.

Answer---------False.

Reciprocal method is the one that recognizes all interactions among support departments