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The following figure depicts the complete system that Office Inc. uses to estimate the total cost of each office desk and office chair that it produces. How many cost pools does Office Inc.'s 2-stage costing system use for Office Chair objects?    A. 7 B. 0 C. 6 D. 5 E. 4 F. 2 G. 1 H. 3 I. 8

The following figure depicts the complete system that Office Inc. uses to estimate the total cost of each office desk and office chair that it produces. How many cost pools does Office Inc.'s 2-stage costing system use for Office Chair objects?    A. 7 B. 0 C. 6 D. 5 E. 4 F. 2 G. 1 H. 3 I. 8

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The following figure depicts the complete system that Office Inc. uses to estimate the total cost of each office desk and office

chair that it produces. How many cost pools does Office Inc.'s 2-stage costing system use for Office Chair objects? 

 

A. 7

B. 0

C. 6

D. 5

E. 4

F. 2

G. 1

H. 3

I. 8

### Understanding Cost Allocation in Manufacturing When it comes to manufacturing, accurately allocating costs to specific products is crucial for determining their profitability. The diagram provided illustrates the process of assigning various cost components to cost objects in a manufacturing environment, specifically focusing on office desks and office chairs as cost objects. #### Key Components Explained: 1. **Direct Materials Cost**: - The cost of raw materials that can be directly traced to the production of specific goods. In this case, direct materials costs are allocated to both office desk cost objects and office chair cost objects. 2. **Direct Labor Cost**: - The wages paid to workers who can be directly involved in the manufacturing of specific products. These costs are also allocated to both office desk cost objects and office chair cost objects. 3. **Indirect Manufacturing Overhead Cost**: - These are costs incurred in the manufacturing process that cannot be directly traced to specific products. These are further divided into different categories: - **Machine-related Overhead Costs** - **Labor-related Overhead Costs** - **Unit-related Overhead Costs** #### Allocation Process: 1. **Direct Materials and Direct Labor Cost Allocation**: - Both direct materials cost and direct labor cost are directly allocated to both the office desks and office chairs. This is represented by arrows pointing from the boxes labeled "Direct Materials Cost" and "Direct Labor Cost" to the boxes labeled "Office Desk Cost Objects" and "Office Chair Cost Objects". 2. **Indirect Manufacturing Overhead Cost Allocation**: - Indirect manufacturing overhead costs are first divided into more specific overhead categories: machine-related, labor-related, and unit-related. - Each specialized overhead cost category is then allocated to both office desks and office chairs. #### Detailed Diagram Explanation: * **Direct Materials Cost** and **Direct Labor Cost**: Both cost categories have arrows leading directly to the cost objects for office desks and office chairs. * **Indirect Manufacturing Overhead Cost**: This is divided into three sub-categories: - **Machine-related Overhead Cost**: An arrow extends from this category to both office desk cost objects and office chair cost objects. - **Labor-related Overhead Cost**: Similarly, an arrow from this category leads to both cost objects. - **Unit-related Overhead Cost**: This category also has arrows leading to both office desk and office chair cost objects. #### Conclusion: Understanding how costs are allocated in a manufacturing setting enables better pricing, cost control, and
Transcribed Image Text:### Understanding Cost Allocation in Manufacturing When it comes to manufacturing, accurately allocating costs to specific products is crucial for determining their profitability. The diagram provided illustrates the process of assigning various cost components to cost objects in a manufacturing environment, specifically focusing on office desks and office chairs as cost objects. #### Key Components Explained: 1. **Direct Materials Cost**: - The cost of raw materials that can be directly traced to the production of specific goods. In this case, direct materials costs are allocated to both office desk cost objects and office chair cost objects. 2. **Direct Labor Cost**: - The wages paid to workers who can be directly involved in the manufacturing of specific products. These costs are also allocated to both office desk cost objects and office chair cost objects. 3. **Indirect Manufacturing Overhead Cost**: - These are costs incurred in the manufacturing process that cannot be directly traced to specific products. These are further divided into different categories: - **Machine-related Overhead Costs** - **Labor-related Overhead Costs** - **Unit-related Overhead Costs** #### Allocation Process: 1. **Direct Materials and Direct Labor Cost Allocation**: - Both direct materials cost and direct labor cost are directly allocated to both the office desks and office chairs. This is represented by arrows pointing from the boxes labeled "Direct Materials Cost" and "Direct Labor Cost" to the boxes labeled "Office Desk Cost Objects" and "Office Chair Cost Objects". 2. **Indirect Manufacturing Overhead Cost Allocation**: - Indirect manufacturing overhead costs are first divided into more specific overhead categories: machine-related, labor-related, and unit-related. - Each specialized overhead cost category is then allocated to both office desks and office chairs. #### Detailed Diagram Explanation: * **Direct Materials Cost** and **Direct Labor Cost**: Both cost categories have arrows leading directly to the cost objects for office desks and office chairs. * **Indirect Manufacturing Overhead Cost**: This is divided into three sub-categories: - **Machine-related Overhead Cost**: An arrow extends from this category to both office desk cost objects and office chair cost objects. - **Labor-related Overhead Cost**: Similarly, an arrow from this category leads to both cost objects. - **Unit-related Overhead Cost**: This category also has arrows leading to both office desk and office chair cost objects. #### Conclusion: Understanding how costs are allocated in a manufacturing setting enables better pricing, cost control, and
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