ECONOMICS

Detailed explanation-1: -The correct option is B. the actual hours required to complete the output of the period. In standard costing, the overhead rate is applied to the actual number of units of the allocation base (the denominator hours).

Detailed explanation-2: -The statement is TRUE. Suppose, for example, a company uses direct labor hours as its overhead application activity. The standard says that each unit should use 1.5 direct labor hours and the company manufactured 100, 000 units using 140, 000 direct labor hours.

Detailed explanation-3: -Overhead costs can include fixed monthly and annual expenses such as rent, salaries and insurance or variable costs such as advertising expenses that can vary month-on-month based on the level of business activity.

Detailed explanation-4: -Standard costs are estimates of the cost of goods sold–that is, the cost required to produce your products. They usually consist of three parts: direct materials, direct labor, and manufacturing overhead.

Detailed explanation-5: -Standard costs are based on historical data and expected levels of efficiency. They can be considered the “ideal” cost of producing something and provide a target for managers to strive for. On the other hand, budgets are actual costs that have been incurred.