(Appendix 11A)In a standard cost system, overhead is applied to production on the basis of:
A)the denominator hours chosen for the period.
B)the actual hours required to complete the actual output of the period.
C)the standard hours allowed to complete the actual output of the period.
D)the actual cost of fixed overhead during the period.

Question

Quizplus · Accepted Answer

Standard cost system applies overhead to production on the basis of standard hours allowed to complete the actual output of the period. This is because standard hours represent the amount of time that should be taken to complete a product, considering a normal level of efficiency. Applying overhead on this basis helps to ensure that the product cost includes a fair share of the overhead cost. Option A is incorrect because denominator hours are used to calculate the overhead absorption rate, not for applying overhead to production. Option B is incorrect because actual hours may not represent a fair share of the overhead cost if the employees are working at a different level of efficiency. Option D is incorrect because actual cost of fixed overhead is reviewed to calculate the under or over applied overhead at the end of the period.

(Appendix 11A)In a Standard Cost System, Overhead Is Applied to Production