One of the disadvantages of the departmental and the plantwide overhead rate methods is that OA. technological advances may decrease the effect of direct labor hours as a percentage of total manufacturing costs. B. technological advances may increase direct labor hours as a percentage of total manufacturing costs. C. direct labor hours may decrease the effect of technological advances. D. direct labor hours may increase the effect of technological advances.

One of the disadvantages of the departmental and the plantwide overhead rate methods is that OA. technological advances may decrease the effect of direct labor hours as a percentage of total manufacturing costs. B. technological advances may increase direct labor hours as a percentage of total manufacturing costs. C. direct labor hours may decrease the effect of technological advances. D. direct labor hours may increase the effect of technological advances.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 3DQ: Explain how a plantwide overhead rate, using a unit-based driver, can produce distorted product...

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One of the disadvantages of the departmental and the plantwide overhead rate methods is that OA. technological advances may decrease the effect of direct labor hours as a percentage of total manufacturing costs. B. technological advances may increase direct labor hours as a percentage of total manufacturing costs. OC. direct labor hours may decrease the effect of technological advances. OD. direct labor hours may increase the effect of technological advances.
If the activities that generate overhead costs vary between departments and products, adopting a plantwide manufacturing overhead rate would result in skewed product costs.True \sFalse
If the activities causing overhead costs are different across different departments and products, use of a plantwide factory overhead rate will cause distorted product costs. True False
Traditional overhead allocations result in which of the following situations? a. Overhead costs are assigned as period costs to manufacturing operations. b. High-volume products are assigned too much overhead, while low-volume products are assigned too little overhead. c. Low-volume products are assigned too much overhead, while high-volume products are assigned too little overhead. d. The resulting allocations cannot be used for financial reports.
Which of the following are true regarding activity-basedcosting? a. A primary goal of using ABC is a more useful alloca-tion of manufacturing overhead to product lines. b. Under ABC, direct labor hours are never used to allo-cate overhead costs to activity pools or product lines. c. The use of ABC is indicated when it is suspected thateach of a firm’s product lines consumes approximatelythe same amount of overhead resources but the current allocation scheme assigns each line a substantially dif-ferent amount.
Explain how a plantwide overhead rate, using a unit-based driver, can produce distorted product costs. In your answer, identify two major factors that impair the ability of plantwiderates to assign cost accurately.
When applied by service companies, the use of the single and multiple department overhead rate methods will not lead to the same kinds of cost distortions often faced by manufacturing companies with those methods. True False
Underapplied factory overhead results when? a. A plant is operated at less than its normal capacity. b. Factory overhead costs incurred are greater than the costs charged to production. c. Factory overhead costs incurred is less than the costs charged to production. d. Factory overhead costs incurred are unreasonably large in relation to the number of units produced
1. Costs that do not change with the change in the level of production for some time is classified as ________. variable costs fixed costs mixed costs None of these choices are correct. 2. Under variable costing, the cost of goods manufactured consists of all except direct materials. direct labor. variable factory overhead. fixed factory overhead. 3. Costs that have characteristics of both a variable cost and a fixed cost are classified as ________. variable costs fixed costs mixed costs None of these choices are correct.
Which of the following is not a reason to allocate overhead? Some overhead costs are seasonal and should be spread over production for the entire year. Unlike direct materials and direct labor, the amount of overhead actually incurred may not be known at the time a job is being worked on. Allocation is more accurate than tracing items directly to jobs. Manufacturing overhead is an indirect cost that cannot be physically or economically traced back to a specific item.
Overapplied factory overhead would result if: a. The plant was operating at less than normal capacity b. Factory overhead costs incurred were less than costs charged to production c. Factory overhead costs incurred were unreasonably large in relation to units produced d. Factory overhead costs incurred were greater than costs charged to production
Using ABC product cost information when considering reducing cost, which of the following would not be a way to reduce activity costs? a.Improve operations so that the activity-base usage per unit is eliminated. b.Switch to a plantwide allocation rate. c.Improve operations so that the activity-base usage per unit is reduced. d.Change the classification of employees doing an activity to decrease the activity rate.