Answered: A company may use multiple overhead…

A company may use multiple overhead rates because some departments are labor intensive whereas other departments are machine intensive.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

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A company may use multiple overhead rates because some departments are labor intensive whereas other departments are machine intensive.
True or False
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Why is using a single plantwide overhead allocation rate not always accurate?
Explain why the fixed manufacturing overhead cost per unit changes when there is a change in the number of units produced.
It is possible for units in the beginning Work-in-Process Inventory to also be part of the ending Work-in-Process Inventory True or False True False Activity-based costing is based on the concept that products produce activities and activities produce resources. True or False True False
Departmental overhead rates applied based on a volume measure such as direct labour-hours or machine-hours will eliminate any distortions in unit costs due to product diversity. true or false
Accounting Direct labor or machine hours may not be the appropriate cost driver for overhead in all areas of manufacturing due to the complexities of many manufacturing processes. Many companies use activity-based costing (ABC) which uses multiple drivers (items that consume resources) rather than just one driver to apply overhead to their activities. With ABC, a company can use a cost driver that has a direct cause/effect relationship in its applied overhead costs. Waterways looked into ABC as a method of costing because of the variety of items it produces and the many different activities in which it is involved. The activities listed below area sample of possible cost pools for Waterways. Assembling Payroll Billing Plant supervision Digging trenches Product design Janitorial Purchasing materials Machine maintenance Selling Machine setups Testing Molding Welding Packaging Using the following information, determine the overhead rates and the actual cost assigned for each of the…
Assigning manufacturing overhead to a specific job is complicated by all of the following except: Multiple Choice Manufacturing overhead is an indirect cost that is either impossible or difficult to trace to a particular job. Manufacturing overhead is incurred only to support some jobs. Manufacturing overhead consists of both variable and fixed costs. The average cost of actual fixed manufacturing overhead expenses will vary depending on how many units are produced in a perio
Departmental overhead rates may not correctly assign overhead costs due to: Multiple Choice the use of direct labor hours in allocating overhead costs to products rather than machine time or quantity of materials used. the high correlation between direct labor-hours and the incurrence of overhead costs. overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production. difficulties associated with identifying cost pools for the first stage of the allocation process.
Why are some manufacturing firms switching from direct-labor hours to machine hours or throughput time as the basis for overhead application?
What do you think are some advantages for using the ABC method versus a single plant-wide rate or multiple departmental overhead rates. Why would an activity-based costing (ABC) system appeal to some companies and not all companies. Provide at least 3 examples of companies you think would and wouldn't want to use the ABC method.
If the single plantwide overhead rate is the easiest method to allocate support department costs to production departments, why would a company use a more complicated method?
What are the advantages and disavantages of the traditional, activity based costing, and multiple production department methods for allocating factory overhead?
Job-order costing is used to calculate the cost of producing a unique or custom-made product, whereas process costing is used for the production of standardized products. Job-order costing assigns costs to each job, while process costing assigns costs to each process or department. Job-order costing uses job cost sheets to accumulate costs for each job, while process costing uses departmental production reports to accumulate costs for each process. Job-order costing can have high variation in production costs per unit, while process costing typically results in more stable production costs per unit. Job-order costing is more suitable for small production runs, while process costing is more suitable for large-scale production. Job-order costing requires a higher level of record-keeping and tracking of costs for each job, while process costing requires tracking of costs for each department or process.