Explain the reason for traditional volume-based cost allocation system that is likely to systematically distort product costs.

Question

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Answer 1

Question

Chapter 5, Problem 1Q

To determine

Explain the reason for traditional volume-based cost allocation system that is likely to systematically distort product costs.

Expert Solution & Answer

Explanation of Solution

Product costs: The costs incurred to acquire the merchandise, ship the stock, prepare the merchandise for sale, and store the inventory are collectively referred to as product costs or inventory costs. Purchase price of merchandise, transportation costs, conversion costs, storage costs are some examples of product costs.

Traditional volume based cost allocation system focus only on volume of production and not on activities required to be performed in producing various products that is direct labor dollars, direct labor hours, or machine hours. These are likely to systematically misrepresent product costs because they break relation between the cause and assigning for the cost to the individual products.

Examples for batch related activities are as follows:

Set ups.
Changeovers.
Inspecting the first item of production run.

Examples for number of product are as follows:

Scheduling materials receipts.
Improving products.

On the other hand cost distortions tend to have great change between relative proportions of indirect resources which is used by cost objects. It reflects greater differences because traditional cost assignment regarding volume-related measures doesn’t reflect the differences between relative proportions (of indirect resources).

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Answer 2

Question

Chapter 5, Problem 1Q

To determine

Explain the reason for traditional volume-based cost allocation system that is likely to systematically distort product costs.

Expert Solution & Answer

Explanation of Solution

Product costs: The costs incurred to acquire the merchandise, ship the stock, prepare the merchandise for sale, and store the inventory are collectively referred to as product costs or inventory costs. Purchase price of merchandise, transportation costs, conversion costs, storage costs are some examples of product costs.

Traditional volume based cost allocation system focus only on volume of production and not on activities required to be performed in producing various products that is direct labor dollars, direct labor hours, or machine hours. These are likely to systematically misrepresent product costs because they break relation between the cause and assigning for the cost to the individual products.

Examples for batch related activities are as follows:

Set ups.
Changeovers.
Inspecting the first item of production run.

Examples for number of product are as follows:

Scheduling materials receipts.
Improving products.

On the other hand cost distortions tend to have great change between relative proportions of indirect resources which is used by cost objects. It reflects greater differences because traditional cost assignment regarding volume-related measures doesn’t reflect the differences between relative proportions (of indirect resources).

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Answer 3

Question

Chapter 5, Problem 1Q

To determine

Explain the reason for traditional volume-based cost allocation system that is likely to systematically distort product costs.

Expert Solution & Answer

Explanation of Solution

Product costs: The costs incurred to acquire the merchandise, ship the stock, prepare the merchandise for sale, and store the inventory are collectively referred to as product costs or inventory costs. Purchase price of merchandise, transportation costs, conversion costs, storage costs are some examples of product costs.

Traditional volume based cost allocation system focus only on volume of production and not on activities required to be performed in producing various products that is direct labor dollars, direct labor hours, or machine hours. These are likely to systematically misrepresent product costs because they break relation between the cause and assigning for the cost to the individual products.

Examples for batch related activities are as follows:

Set ups.
Changeovers.
Inspecting the first item of production run.

Examples for number of product are as follows:

Scheduling materials receipts.
Improving products.

On the other hand cost distortions tend to have great change between relative proportions of indirect resources which is used by cost objects. It reflects greater differences because traditional cost assignment regarding volume-related measures doesn’t reflect the differences between relative proportions (of indirect resources).

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Answer 4

Question

Chapter 5, Problem 1Q

To determine

Explain the reason for traditional volume-based cost allocation system that is likely to systematically distort product costs.

Expert Solution & Answer

Explanation of Solution

Product costs: The costs incurred to acquire the merchandise, ship the stock, prepare the merchandise for sale, and store the inventory are collectively referred to as product costs or inventory costs. Purchase price of merchandise, transportation costs, conversion costs, storage costs are some examples of product costs.

Traditional volume based cost allocation system focus only on volume of production and not on activities required to be performed in producing various products that is direct labor dollars, direct labor hours, or machine hours. These are likely to systematically misrepresent product costs because they break relation between the cause and assigning for the cost to the individual products.

Examples for batch related activities are as follows:

Set ups.
Changeovers.
Inspecting the first item of production run.

Examples for number of product are as follows:

Scheduling materials receipts.
Improving products.

On the other hand cost distortions tend to have great change between relative proportions of indirect resources which is used by cost objects. It reflects greater differences because traditional cost assignment regarding volume-related measures doesn’t reflect the differences between relative proportions (of indirect resources).

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Answer 5

Chapter 5, Problem 1Q

To determine

Explain the reason for traditional volume-based cost allocation system that is likely to systematically distort product costs.

Expert Solution & Answer

Explanation of Solution

Product costs: The costs incurred to acquire the merchandise, ship the stock, prepare the merchandise for sale, and store the inventory are collectively referred to as product costs or inventory costs. Purchase price of merchandise, transportation costs, conversion costs, storage costs are some examples of product costs.

Traditional volume based cost allocation system focus only on volume of production and not on activities required to be performed in producing various products that is direct labor dollars, direct labor hours, or machine hours. These are likely to systematically misrepresent product costs because they break relation between the cause and assigning for the cost to the individual products.

Examples for batch related activities are as follows:

Set ups.
Changeovers.
Inspecting the first item of production run.

Examples for number of product are as follows:

Scheduling materials receipts.
Improving products.

On the other hand cost distortions tend to have great change between relative proportions of indirect resources which is used by cost objects. It reflects greater differences because traditional cost assignment regarding volume-related measures doesn’t reflect the differences between relative proportions (of indirect resources).

Answer 6

Chapter 5, Problem 1Q

To determine

Explain the reason for traditional volume-based cost allocation system that is likely to systematically distort product costs.

Expert Solution & Answer

Explanation of Solution

Product costs: The costs incurred to acquire the merchandise, ship the stock, prepare the merchandise for sale, and store the inventory are collectively referred to as product costs or inventory costs. Purchase price of merchandise, transportation costs, conversion costs, storage costs are some examples of product costs.

Traditional volume based cost allocation system focus only on volume of production and not on activities required to be performed in producing various products that is direct labor dollars, direct labor hours, or machine hours. These are likely to systematically misrepresent product costs because they break relation between the cause and assigning for the cost to the individual products.

Examples for batch related activities are as follows:

Set ups.
Changeovers.
Inspecting the first item of production run.

Examples for number of product are as follows:

Scheduling materials receipts.
Improving products.

On the other hand cost distortions tend to have great change between relative proportions of indirect resources which is used by cost objects. It reflects greater differences because traditional cost assignment regarding volume-related measures doesn’t reflect the differences between relative proportions (of indirect resources).

Answer 7

Chapter 5, Problem 1Q

To determine

Explain the reason for traditional volume-based cost allocation system that is likely to systematically distort product costs.

Answer 8

Expert Solution & Answer

Explanation of Solution

Product costs: The costs incurred to acquire the merchandise, ship the stock, prepare the merchandise for sale, and store the inventory are collectively referred to as product costs or inventory costs. Purchase price of merchandise, transportation costs, conversion costs, storage costs are some examples of product costs.

Traditional volume based cost allocation system focus only on volume of production and not on activities required to be performed in producing various products that is direct labor dollars, direct labor hours, or machine hours. These are likely to systematically misrepresent product costs because they break relation between the cause and assigning for the cost to the individual products.

Examples for batch related activities are as follows:

Set ups.
Changeovers.
Inspecting the first item of production run.

Examples for number of product are as follows:

Scheduling materials receipts.
Improving products.

On the other hand cost distortions tend to have great change between relative proportions of indirect resources which is used by cost objects. It reflects greater differences because traditional cost assignment regarding volume-related measures doesn’t reflect the differences between relative proportions (of indirect resources).