Answered: If the activities that generate…

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

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 3DQ

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Question

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

Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.

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Similar questions

Why would a manufacturing company with multiple production departments still prefer to use a single plantwide overhead rate?
Under what two conditions would the multiple production department factory overhead rate method provide more accurate product costs than the single plantwide factory overhead rate method?
Activity-based costing systems: A. use a single predetermined overhead rate based on machine hours instead of on direct labor B. frequently increase the overhead allocation to at least one product while decreasing the overhead allocation to at least one other product C. limit the number of cost pools D. always result in an increase of at least one products selling price
What are the distinguishing characteristics of variable, fixed, and semivariable factory overhead costs?
Why does a company use a standard costing system? A. to identify variances from actual cost that assist them in maintaining profits B. to identify nonperformers in the workplace C. to identify what vendors are unreliable D. to identify defective materials
A CPA would recommend changing from plantwide overhead rate application to departmental rates under which of the following circumstances? a. The plant produces one product. b. The plant produces multiple products that may or may not pass through all producing departments. c. The plant produces multiple products that pass through all of the producing departments. d. The plant produces many different products that consume the same amount of resources in each producing department.
Which is not a step in analyzing the cost driver for manufacturing overhead? A. Identify the cost B. identify non-value-added costs C. analyze the effect on manufacturing overhead D. identify the correlation between the potential driver and manufacturing overhead
Under what two conditions would the multiple production department factory overhead rate method provide more accurate product costs than the single plantwide factory overhead rate method?
Which of the following is a reason a company would implement activity-based costing? A. The cost of record keeping is high. B. The additional data obtained through traditional allocation are not worth the cost. C. They want to improve the data on which decisions are made. D. A company only has one cost driver.
Explain why service companies use different activity bases than manufacturing companies to classify costs as fixed or variable.
Which of the following product situations is better suited to job order costing than to process costing? A. Each product batch is exactly the same as the prior batch. B. The costs are easily traced to a specific product. C. Costs are accumulated by department. D. The value of work in process is based on assigning standard costs.
Activity-based costing is preferable in a system: when multiple products have similar product volumes and costs with a large direct labor cost as a percentage of the total product cost with multiple, diverse products where management needs to support an increase in sales price