rying about the choice of an overhead allocation base is a waste of time. In the end, all the overhead is charged to production." Do you agree or disagree with these statements? And why? The initial discussion board post will need to be a min
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Worrying about the choice of an overhead allocation base is a waste of time. In the end, all the overhead is charged to production." Do you agree or disagree with these statements? And why?
The initial discussion board post will need to be a minimum of 100 words.
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- The cost accountant of L. Rosales, Inc. is considering to use the ABC system in determining the cost of its products. At present, the company uses the traditional costing systems wherein factory overhead costs are allocated based on direct labor hours. This cost accountant believes that the present system may be providing misleading cost information, hence, the plan to change to ABC system. For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted factory overhead amounts to P 90,000, broken down as follows: Activity Cost Driver Budgeted Activity Budgeted Cost Sets up cost Number of set ups 40 P 20,000 Production monitoring Number of batches 20 40,000 Quality control Number of inspections 1,000 30,000 Total overhead…The cost accountant of L. Rosales, Inc. is considering to use the ABC system in determining the cost of its products. At present, the company uses the traditional costing systems wherein factory overhead costs are allocated based on direct labor hours. This cost accountant believes that the present system may be providing misleading cost information, hence, the plan to change to ABC system. For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted factory overhead amounts to P 90,000, broken down as follows: Activity Cost Driver Budgeted Activity Budgeted Cost Sets up cost Number of set ups 40 P 20,000 Production monitoring Number of batches 20 40,000 Quality control Number of inspections 1,000 30,000 Total overhead costs…A stapler manufacturer uses a single plantwide predetermined overhead allocation rate to allocate its indirect costs. The CFO thinks this process could be inaccurate. Which of the following statement is incorrect, if the manufacture makes the transition to using multiple predetermined overhead allocation rates? A. The allocation process changes because there are now multiple cost pools and multiple allocation bases. B. Management must analyze the expected overhead costs and separate them into a cost pool for each department. C. In selecting machine usage as the primary cost driver for the Production Department, management feels that there is a direct relationship between the number of machine hours used and the amount of overhead costs incurred. D. The use of multiple predetermined overhead allocation rates is more complex, but it may be more accurate.
- Hermann is not satisfied with the traditional method of allocating overhead because he believes that most of the overhead costs relate to the truck wheels product line because of its complexity. He therefore develops the following three activity cost pools and related cost drivers to better understand these costs. Activity Cost Pools Estimated Use ofCost Drivers Estimated OverheadCosts Setting up machines 1,000 setups $216,000 Assembling 72,000 labor hours 360,000 Inspection 1,200 inspections 259,200 Compute the activity-based overhead rates for these three cost pools.For years, EML has allocated overhead based on total machine hours. A recent assessment of overheadcosts has shown that these costs are now more than 45 per cent of the company's total costs. Sara isspecifically worried about this variance, and as a managing director, she is trying to control overheadbetter. For this purpose, the head of the management accountant adopted an activity-based costingsystem. Each cutting board goes through the five processes. These processes are elaborated on in thefollowing paragraph.To better control overhead, EML is adopting an activity-based costing system. Each cutting board goesthrough the following processes. The given data reveals that cutting is the first process. In this process,boards are selected from inventory and are cut to the required width and length. Imperfections inboards (such as knots or cracks) are identified and removed. The second process is assembly. In thisprocess, cut wooden pieces are laid out on clamps, a layer of glue is…The management of Hartman Company is trying to determine the amount of each of two products to produce over the coming planning period. The following information concerns labor availability, labor utilization, and product profitability: a. Develop a linear programming model of the Hartman Company problem. Solve the model to determine the optimal production quantities of products 1 and 2. b. In computing the profit contribution per unit, management does not deduct labor costs because they are considered fixed for the upcoming planning period. However, suppose that overtime can be scheduled in some of the departments. Which departments would you recommend scheduling for overtime? How much would you be willing to pay per hour of overtime in each department? c. Suppose that 10, 6, and 8 hours of overtime may be scheduled in departments A, B, and C, respectively. The cost per hour of overtime is 18 in department A, 22.50 in department B, and 12 in department C. Formulate a linear programming model that can be used to determine the optimal production quantities if overtime is made available. What are the optimal production quantities, and what is the revised total contribution to profit? How much overtime do you recommend using in each department? What is the increase in the total contribution to profit if overtime is used?
- The controller for Muir Companys Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting. She decided to concentrate on the past 12 months since that time period was one in which there was little important change in technology, product lines, and so on. Data on overhead costs, number of machine hours, number of setups, and number of purchase orders are in the following table. Required: 1. Calculate an overhead rate based on machine hours using the total overhead cost and total machine hours. (Round the overhead rate to the nearest cent and predicted overhead to the nearest dollar.) Use this rate to predict overhead for each of the 12 months. 2. Run a regression equation using only machine hours as the independent variable. Prepare a flexible budget for overhead for the 12 months using the results of this regression equation. (Round the intercept and x-coefficient to the nearest cent and predicted overhead to the nearest dollar.) Is this flexible budget better than the budget in Requirement 1? Why or why not?The management of Wheeler Company has decided to develop cost formulas for its major overhead activities. Wheeler uses a highly automated manufacturing process, and power costs are a significant manufacturing cost. Cost analysts have decided that power costs are mixed; thus, they must be broken into their fixed and variable elements so that the cost behavior of the power usage activity can be properly described. Machine hours have been selected as the activity driver for power costs. The following data for the past eight quarters have been collected: Required: 1. Prepare a scattergraph by plotting power costs against machine hours. Does the scatter-graph show a linear relationship between machine hours and power cost? 2. Using the high and low points, compute a power cost formula. 3. Use the method of least squares to compute a power cost formula. Evaluate the coefficient of determination. 4. Rerun the regression and drop the point (20,000; 26,000) as an outlier. Compare the results from this regression to those for the regression in Requirement 3. Which is better?Young Company is beginning operations and is considering three alternatives to allocate manufacturing overhead to individual units produced. Young can use a plantwide rate, departmental rates, or activity-based costing. Young will produce many types of products in its single plant, and not all products will be processed through all departments. In which one of the following independent situations would reported net income for the first year be the same regardless of which overhead allocation method had been selected? a. All production costs approach those costs that were budgeted. b. The sales mix does not vary from the mix that was budgeted. c. All manufacturing overhead is a fixed cost. d. All ending inventory balances are zero.
- A company is considering a special order for 1,000 units to be priced at 8.90 (the normal price would be 11.50). The order would require specialized materials costing 4.00 per unit. Direct labor and variable factory overhead would cost 2.15 per unit. Fixed factory overhead is 1.20 per unit. However, the company has excess capacity, and acceptance of the order would not raise total fixed factory overhead. The warehouse, however, would have to add capacity costing 1,300. Which of the following is relevant to the special order? a. 11.50 b. 1.20 c. 7.35 d. 8.90Anderson Company has the following departmental manufacturing structure for one of its products: After some study, the production manager of Anderson recommended the following revised cellular manufacturing approach: Required: 1. Calculate the total time it takes to produce a batch of 20 units using Andersons traditional departmental structure. 2. Using cellular manufacturing, how much time is saved producing the same batch of 20 units? Assuming the cell operates continuously, what is the production rate? Which process controls this production rate? 3. What if the processing times of molding, welding, and assembly are all reduced to six minutes each? What is the production rate now, and how long will it take to produce a batch of 20 units?Gumbrecht Company has the following departmental manufacturing layout for one of its plants: A consulting firm has recommended a value stream with the following manufacturing cell: Required: 1. Calculate the total time it takes to produce a batch of 20 units using the traditional departmental manufacturing layout. 2. Using cellular manufacturing, how much time is saved producing the same batch of 20 units? Assuming the cell operates continuously, what is the production rate? Which process controls this production rate? 3. Assume the processing time of Casting is reduced to 9 minutes, while the times of the other processes stay the same. What is the production rate now, and how long will it take to produce a batch of 20 units if the cell is in a continuous production mode?
