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Both plantwide and departmental rates rely on unit-level drivers to assign overhead to products. However, not all overhead is caused by or related to units produced. Setup costs, for example, are incurred each time a batch is produced and a patch may consist of 1,000 units or 10,000 units. Setup costs tend to increase as batches increase-not as units produced increase. There are other factors, called non-unit drivers, which better measure the demand that products place on no unit overhead activities. If non-unit overhead resources are a significant portion of total overhead, then using only unit-based drivers to assign overhead may create distorted product costs. Distorted product costs will not occur provided that

Both plantwide and departmental rates rely on unit-level drivers to assign overhead to products. However, not all overhead is caused by or related to units produced. Setup costs, for example, are incurred each time a batch is produced and a patch may consist of 1,000 units or 10,000 units. Setup costs tend to increase as batches increase-not as units produced increase. There are other factors, called non-unit drivers, which better measure the demand that products place on no unit overhead activities. If non-unit overhead resources are a significant portion of total overhead, then using only unit-based drivers to assign overhead may create distorted product costs. Distorted product costs will not occur provided that

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 3PA: Activity-based and department rate product costing and product cost distortions Black and Blue...
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Both plantwide and departmental rates rely on unit-level drivers to assign overhead to products. However, not all overhead is caused by or related to units produced. Setup costs, for example, are incurred each time a batch is produced and a patch may consist of 1,000 units or 10,000 units. Setup costs tend to increase as batches increase-not as units produced increase. There are other factors, called non-unit drivers, which better measure the demand that products place on no unit overhead activities. If non-unit overhead resources are a significant portion of total overhead, then using only unit-based drivers to assign overhead may create distorted product costs. Distorted product costs will not occur provided that
Transcribed Image Text:Both plantwide and departmental rates rely on unit-level drivers to assign overhead to products. However, not all overhead is caused by or related to units produced. Setup costs, for example, are incurred each time a batch is produced and a patch may consist of 1,000 units or 10,000 units. Setup costs tend to increase as batches increase-not as units produced increase. There are other factors, called non-unit drivers, which better measure the demand that products place on no unit overhead activities. If non-unit overhead resources are a significant portion of total overhead, then using only unit-based drivers to assign overhead may create distorted product costs. Distorted product costs will not occur provided that
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