Question

Which of the following statements is true?

I. Overhead can be applied slowly as a job is worked on.
II. Overhead can be applied when the job is completed.
III. Overhead should be applied to any job not completed at year-end in order to properly value the work in process inventory.
A) Only statement I is true.
B) Only statement II is true.
C) Both statements I and II are true.
D) Statements I, II, and III are all true.

Answer 1

All the three statements regarding overhead application are true. Overhead can be applied both during and after production, and must be applied to unfinished jobs at year-end to accurately value work in process inventory. The true statement among the ones provided is D) Statements I, II, and III are all true.

Step-by-step explanation:

The true statement among the ones provided is D) Statements I, II, and III are all true.

1. Overhead can be applied slowly as a job is worked on: This practice allows businesses to allocate overhead costs gradually as resources are consumed throughout the production process.
2. Overhead can be applied when the job is completed: Some businesses prefer to assign overhead costs upon the completion of a job to simplify the accounting process and provide a clear cost as the product or service is finished.
3. Overhead should be applied to any job not completed at year-end: In order to properly value the work in process (WIP) inventory for financial statements, it's important to apply overhead to any unfinished jobs. This ensures that the valuation of WIP is accurate and reflects the total cost of production up to that point.