Asked by Christina Ercolani on May 09, 2024
Verified
Which of the following statements is true for Year 1?
A) The amount of fixed manufacturing overhead released from inventories is $108,000
B) The amount of fixed manufacturing overhead deferred in inventories is $513,000
C) The amount of fixed manufacturing overhead released from inventories is $513,000
D) The amount of fixed manufacturing overhead deferred in inventories is $108,000
Fixed Manufacturing Overhead
These are production costs that do not change with the level of manufacturing activity, such as rent for factory premises.
Inventories
Assets held for sale in the ordinary course of business, or materials to be used or consumed in the production process.
Deferred
Postponed or delayed actions or transactions, often referring to income or expenses that will be recognized in a future accounting period.
- Understand how fixed manufacturing overhead is treated under variable and absorption costing.
Verified Answer
Fixed manufacturing overhead incurred = $621,000
Fixed manufacturing overhead applied = $729,000
This means that there is an over-applied amount of fixed manufacturing overhead, which needs to be deferred in inventories.
Over-applied amount = Applied amount - Incurred amount
Over-applied amount = $729,000 - $621,000
Over-applied amount = $108,000
Therefore, the correct statement is that the amount of fixed manufacturing overhead deferred in inventories is $108,000 (Option D).
Learning Objectives
- Understand how fixed manufacturing overhead is treated under variable and absorption costing.
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