Under standard absorption costing, how is fixed factory overhead allocated to manufactured products?
AExpensed fully in period incurred as operating overhead
BDeducted directly from total gross revenues
CUsing a predetermined overhead absorption rate based on expected activity
DCharged directly to period financing cost account
Explanation
* Predetermined Overhead Absorption Rate = Budgeted Overhead Cost / Budgeted Base Activity (e.g., machine hours, labor hours).
* Applied overhead = Predetermined Rate * Actual Activity Level.
* Over-absorbed or under-absorbed overhead is adjusted at period end.
Exam Relevance
- Topic: Cost Accounting
- Subtopic: Overhead Cost Allocation
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