Question 1

The selection of the factory overhead allocation method is important because the method selected determines the accuracy of the product cost.

Accepted Answer

The factory overhead allocation method directly impacts the amount of indirect costs assigned to each product, which in turn affects the accuracy of their cost. Therefore, selecting an appropriate factory overhead allocation method is crucial to calculate precise product cost.

Question 2

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual direct labor hours is 6,700 for the month, the amount of factory overhead to be allocated is $38,525 if the allocation is based on direct labor hours).

Accepted Answer

True

Question 3

When a plantwide factory overhead rate is used, overhead costs are applied to all products by a single rate.

Accepted Answer

With a plantwide factory overhead rate, a single rate is used to apply overhead costs to all products.

Question 4

Multiple production department factory overhead rates are most useful when production departments significantly differ in their manufacturing processes.

Accepted Answer

Multiple production department factory overhead rates allow for a more accurate allocation of overhead costs to each department based on their unique activities and expenses. This is most useful when departments have varying manufacturing processes that result in different levels of overhead costs.

Question 5

If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual direct labor hours is 6,700 for the month, the factory overhead rate for the month is $68.65 if the allocation is based on direct labor hours).

Accepted Answer

The factory overhead rate is calculated by dividing the budgeted factory overhead cost by the budgeted direct labor hours. Therefore, the factory overhead rate = $460,000 / 80,000 hours = $5.75 per direct labor hour.

Question 6

Multiple production department factory overhead rates are less accurate than are plantwide factory overhead rates.

Accepted Answer

Multiple production department factory overhead rates are more accurate than plantwide factory overhead rates as they allocate overhead costs based on the specific activities and resources used by each department. Plantwide rates may allocate costs unevenly across departments leading to inaccurate costing and decision-making.

Question 7

Managers depend on product costing to make decisions regarding continuing operations and product mix.

Accepted Answer

Managers rely on accurate product costing to determine which products to continue producing and which products to discontinue. They also use product costing to make decisions regarding pricing, cost cutting measures, and improvement initiatives.

Question 8

A single plantwide overhead rate method is very expensive to apply.

Accepted Answer

A single plantwide overhead rate method is simple and less expensive to apply compared to other overhead allocation methods such as activity-based costing.

Question 9

Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are different across different departments and products.

Accepted Answer

Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are similar or uniform across different departments and products.

Question 10

A plantwide factory overhead rate is computed by dividing total budgeted factory overhead costs by the plantwide allocation base.

Accepted Answer

This is the correct way to compute a plantwide factory overhead rate.

Question 11

Bob's Biscuit Corporation budgeted $1,200,000 of factory overhead cost for the coming year. Its plantwide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Bob's plantwide factory overhead rate is $12.00 per machine hour.

Accepted Answer

The plantwide factory overhead rate is calculated by dividing the total budgeted factory overhead cost by the total budgeted machine hours. In this case, the calculation is as follows: $1,200,000 ÷ 100,000 hours = $12.00 per machine hour.

Question 12

Multiple production department factory overhead rates are more accurate than are plantwide factory overhead rates.

Accepted Answer

Multiple production department factory overhead rates allocate overhead costs based on specific department activities, resulting in a more accurate reflection of actual overhead costs than a plantwide factory overhead rate, which applies a single rate across the entire plant regardless of department activities.

Question 13

Managers depend on accurate factory overhead allocation to make decisions regarding product mix and product price.

Accepted Answer

Accurate factory overhead allocation is important for managers to make informed decisions about the profitability of different products and the appropriate pricing strategies. Without this information, managers may make decisions that could negatively impact the company's financial performance.

Question 14

A plantwide factory overhead rate assumes that all overhead is directly related to one activity representing the entire plant.

Accepted Answer

A plantwide factory overhead rate simplifies costing by applying a single overhead rate to all products, assuming that overhead costs are uniformly related to a single activity (like machine hours or labor hours) across the entire plant.

Question 15

Zorn Co. budgeted $600,000 of factory overhead cost for the coming year. Its plantwide allocation base, machine hours, is budgeted at 100,000 hours. Budgeted units to be produced are 200,000 units. Zorn's plantwide factory overhead rate is $6.00 per unit.

Accepted Answer

Zorn's plantwide factory overhead rate is calculated based on machine hours, not per unit. The rate is $600,000 / 100,000 hours = $6.00 per machine hour.

Question 16

Multiple production department factory overhead rates are most useful when production departments are very similar in their manufacturing processes.

Accepted Answer

Multiple production department factory overhead rates are most useful when production departments significantly differ in their manufacturing processes, as they allow for more accurate allocation of overhead costs based on the specific activities and resources used by each department.

Question 17

Product costing consists of only direct materials and direct labor.

Accepted Answer

Product costing also includes indirect materials and indirect labor, as well as other indirect costs such as rent, utilities, and depreciation.

Question 18

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.

Accepted Answer

Plantwide factory overhead rate allocates overhead costs based on a single predetermined rate, regardless of the activities causing the overhead costs. This can result in distorted product costs when the activities causing overhead costs are different across different departments and products. In such cases, activity-based costing should be used to allocate overhead costs based on the specific activities related to each product or department.

Question 19

When a plantwide factory overhead rate is used, the total overhead costs allocated to all products are the same.

Accepted Answer

The answer of When a plantwide factory overhead rate is...

Question 20

Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are the same across all departments and products.

Accepted Answer

Plantwide factory overhead rate is calculated by dividing the total estimated overhead cost by a single allocation base, which is usually direct labor hours, machine hours, or direct material costs. This assumes that the activities causing overhead costs are similar across all departments and products, making it appropriate to allocate overhead costs at a single rate to all products produced in the plant.

Quiz 26: Cost Allocation and Activity-Based Costing