Question

12. Overallocated indirect costs occur when the allocated amount of indirect costs is greater than the actual, incurred amount.

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f13. A job-cost sheet is used to record and accumulate all the costs assigned to a specific job, starting when work begins.

Answer 1

In business accounting, 'overhead' refers to fixed costs which remain constant regardless of output levels. The average fixed cost curve shows the cost per unit decreasing as production increases, demonstrating 'spreading the overhead'. Additionally, it is important to differentiate between explicit and implicit costs in cost accounting.

Step-by-step explanation:

The term overhead is commonly used to refer to fixed costs, which do not change with the level of output produced. When you divide the fixed cost by the quantity of output, you obtain the average fixed cost. If we assume a fixed cost of $1,000, the average fixed cost curve would be represented by a hyperbola, decreasing as the quantity of output increases.

This graphical representation demonstrates the concept of spreading the overhead, meaning that as production increases, the average cost per unit of output decreases because the fixed costs are distributed over a larger number of units.

Understanding the distinction between explicit and implicit costs is also crucial in business accounting. Explicit costs involve direct out-of-pocket payments, such as wages and rent, whereas implicit costs account for opportunity costs associated with using resources the firm already owns. Implicit costs can include the depreciation of goods and equipment necessary for operations and the economic cost of using owner-contributed resources without formal compensation.