ACCT TEST 2
difference in allocating FOH in Activity Based Costing VS multiple production department FOH
Under activity-based costing, FOH costs are initially budgeted for activities, (sometimes called activity cost pool) such as machine usage, inspections, moving, production setups, and engineering activities. In contrast, when multiple production department FOH rates are used, FOH costs are first accounted for in production departments.
Activity-based costing systems provide more accurate cost information to management. Management can use this information to >>>>>>>>
adjust prices and evaluate performance. adjust the production process by identifying activities that add little value relative to the cost they incur. They can then work to eliminate or reduce these activities.
The last step in preparing a cost of production report is?
allocating costs to units transferred out and partially completed units.
The single plantwide factory overhead rate can distort product cost by
averaging high and low factory overhead costs.
Equivalent units of production are the
portion of whole units that are complete with respect to materials or conversion costs.
Activity-based costing is more accurate when
products consume activities in proportions unrelated to plantwide or departmental allocation bases.
Selling and administrative expenses can be allocated to
products for management profit reporting, using activity-based costing.
activity-based costing (ABC) method
provides an alternative approach for allocating factory overhead that uses multiple factory overhead rates based on different activities
The choice of allocation method is important to managers because the allocation affects
the product costs
Downside of using Single Plantwide FOH rate method
the single plantwide rate assumes that the factory overhead costs are consumed the same way by all products
Activites
the types of work, or actions, involved in a manufacturing or service process
Multiple Production Department Factory Overhead Rate Method
uses different rates for each production department to allocate FOH costs to products
At J.W. Paint Company, the Blending Department has 10,000 gallons of units in work in process inventory at the end of the month, which are 40% complete. The department also transferred out 39,000 gallons to the Labeling Department. What would the total equivalent units of production be for the month? a. 35,000 gallons b. 49,000 gallons c. 39,000 gallons d. 43,000 gallons
. The 39,000 gallons transferred out to the Labeling Department are considered 100% complete; thus, the equivalent units of production are calculated as: 39,000 + (10,000 × 40%) = 43,000 gallons.
The direct materials and direct labor are direct costs that can be traced to the product. However,___________________ includes indirect costs that must be allocated to the product.
FOH
For example, the assembly, inspection, and engineering design functions are activities that might be used to ...........
Allocate FOH
Product costs consist of
DM,DL,FOH
Single-Plantwide Factory Overhead Rate Method
FOH are allocated to products using only one rate the budgeted allocation base is a measure of operating activity in the factory
Determining the cost of a product is termed
Product costing
The most common methods of allocating factory overhead using predetermined factory overhead rates are:
Single plantwide factory overhead rate method Multiple production department factory overhead rate method Activity-based costing method
The primary advantage of using the single plantwide factory overhead ratemethod is
it's simple and inexpensive to use
If we havent been adjustong out selling price to whats happening this year then we might already be loosing money, SO the FOH for the anual basis is usualyy????
budgetted information
Which of the following measures would help managers to control and improve operations? a. Marketing plan b. Filing of annual federal income tax return c. Cost trends of a product d. Collection of sales taxes on units sold to customers
c. Cost trends of a product
The second step in preparing a cost of production report is ? a. computing the equivalent units of production. b. determining the units to be assigned costs. c. determining the cost per equivalent unit. d. allocating costs to units transferred out.
computing the equivalent units of production.
The cost of production report may be used for analyzing the change in:?:: the specific cost of machinery breakdown in each department the contribution margin ratio of the units sold the hourly wage rate paid to factory employees costs per equivalent unit between periods.
costs per equivalent unit between periods.
Cost of production reports can be used to compare the materials output quantity to the ?
materials input quantity.
The entry to journalize direct labor for Department A and Department B would include a(n)
debit to Work in Process for each department and a credit to Wages Payable.(DL)
To compute equivalent units for conversion costs, it is necessary to know
how direct labor and factory overhead enter the manufacturing process.
The following conditions indicate that a single plantwide factory overhead rate may cause product cost distortions:
• Condition 1: Differences in production department factory overhead rates. Some departments have high rates, whereas others have low rates. • Condition 2: Differences among products in the ratios of allocation base usage within a department and across departments. Some products have a high ratio of allocation base usage within departments, whereas other products have a low ratio of allocation base usage within the same departments.
