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

Question

Want to see more full solutions like this?

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).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Need help with this general accounting question

Cullen Beatty plans to start a consulting business-Cullen Consulting Services. In preparation to do this, on April 1, 20X1, he invested $56,000 in cash and $23,000 in equipment, and opened an account at Office Plus by purchasing $1,750 in office supplies which is due by the end of the month. He then signed a one-year lease agreement on an office building for $8,400, paying the full amount in advance. Prepare a Balance Sheet for Cullen Consulting Services as of April 1, 20X1, before he conducts any services. Cash Equipment Prepaid rent CULLEN CONSULTING SERVICES Balance Sheet April 1, 20X1 Assets Liabilities $ 47,600 Accounts payable 23,000 8,400 Owner's Equity $ 1,750 Cullen Beatty, Capital 77,250 Total Assets $ 79,000 Total Liabilities and Owner's Equity $ 79,000

The December 31, 2021, balance sheet of Chen, Incorporated, showed long-term debt of $1,420,000, $144,000 in the common stock account, and $2,690,000 in the additional paid-in surplus account. The December 31, 2022, balance sheet showed long-term debt of $1,620,000, $154,000 in the common stock account and $2,990,000 in the additional paid-in surplus account. The 2022 income statement showed an interest expense of $96,000 and the company paid out $149,000 in cash dividends during 2022. The firm’s net capital spending for 2022 was $1,000,000, and the firm reduced its net working capital investment by $129,000. What was the firm's 2022 operating cash flow, or OCF?

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).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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).