Managerial Accounting 6100
Often the most difficult part of computing accurate unit costs is - ANS determining the proper
amount of overhead cost to assign to each product, service, or job.
Unlike direct materials and direct labor costs which can usually be easily traced to the product,
overhead is - ANS an indirect or common cost that generally cannot be traced to a product.
a single predetermined overhead rate was used throughout the year to assign - ANS costs to
products.
We assumed that direct labor cost and machine hours were the relevant activity bases for the
assignment of all overhead in - ANS job order and process costing, respectively.
When overhead cost allocation systems were first developed, direct labor made up a large part
of total manufacturing cost. It was widely accepted that there was a high correlation between
direct labor and the incurrence of overhead cost. - ANS As a result, direct labor became the
most popular basis for overhead allocation.
Even in today's environment, direct labor is often - ANS the appropriate basis for assigning
overhead cost to products.
It is appropriate when
direct labor constitutes a significant part of total product cost, and - ANS a high correlation exists
between direct labor and changes in the amount of overhead costs.
Advances in computerized systems, technological innovation, global competition, and
automation have changed the manufacturing environment drastically. - ANS The amount of
direct labor used in many industries is now greatly reduced, and total overhead costs have
significantly increased.
Companies that continue to use plantwide predetermined overhead rates based on direct labor,
- ANS where the correlation between direct labor and overhead no longer exists, experience
significant product cost distortions.
Recognizing these distortions, many companies now use - ANS machine hours as the overhead
allocation base in an automated manufacturing environment.
But even machine hours may not suffice as the sole plantwide basis for - ANS allocating all
overhead.
Often the most difficult part of computing accurate unit costs is - ANS determining the proper
amount of overhead cost to assign to each product, service, or job.
Unlike direct materials and direct labor costs which can usually be easily traced to the product,
overhead is - ANS an indirect or common cost that generally cannot be traced to a product.
a single predetermined overhead rate was used throughout the year to assign - ANS costs to
products.
We assumed that direct labor cost and machine hours were the relevant activity bases for the
assignment of all overhead in - ANS job order and process costing, respectively.
When overhead cost allocation systems were first developed, direct labor made up a large part
of total manufacturing cost. It was widely accepted that there was a high correlation between
direct labor and the incurrence of overhead cost. - ANS As a result, direct labor became the
most popular basis for overhead allocation.
Even in today's environment, direct labor is often - ANS the appropriate basis for assigning
overhead cost to products.
It is appropriate when
direct labor constitutes a significant part of total product cost, and - ANS a high correlation exists
between direct labor and changes in the amount of overhead costs.
Advances in computerized systems, technological innovation, global competition, and
automation have changed the manufacturing environment drastically. - ANS The amount of
direct labor used in many industries is now greatly reduced, and total overhead costs have
significantly increased.
Companies that continue to use plantwide predetermined overhead rates based on direct labor,
- ANS where the correlation between direct labor and overhead no longer exists, experience
significant product cost distortions.
Recognizing these distortions, many companies now use - ANS machine hours as the overhead
allocation base in an automated manufacturing environment.
But even machine hours may not suffice as the sole plantwide basis for - ANS allocating all
overhead.
