Question

When preparing the manufacturing overhead budget, total overhead costs for the period does not equal total overhead cash payments for the period because:     

a.overhead costs typically only require cash payments for indirect materials.

b.overhead costs typically only require cash payments for factory rent.

c.overhead costs typically do not require cash payments.

d.overhead costs typically include depreciation costs, which does not require a cash payment.

Answer 1

	Option	T/F	Explanation
a).	Overhead costs typically only require cash payments for indirect materials.	FALSE	Overhead contains various items and indirec material is just a part of them. They also contain various other items like indirect labour and non cash items
b).	Overhead costs typically only require cash payments for factory rent.	FALSE	Overhead contains various items and factory rent is just a part of them. They also contain various other items like indirect labour and non cash items
c).	Overhead costs typically do not require cash payments.	FALSE	Various overhead items like indirect material, indirect labour etc requires cash payments
d).	Overhead costs typically include depreciation costs, which does not require a cash payment.	TRUE	Overhead contains depreciation cost and it is a non cash item. Therefore, while preparing the manufacturing overhead budget, total overhead costs for the period does not equal total overhead cash payments
	Hence, right answer is (d) i.e. overhead costs typically include depreciation costs, which does not require a cash payment.