Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Textbook Question
Chapter 7, Problem 29E
A CPA would recommend changing from plantwide
- a. The plant produces one product.
- b. The plant produces multiple products that may or may not pass through all producing departments.
- c. The plant produces multiple products that pass through all of the producing departments.
- d. The plant produces many different products that consume the same amount of resources in each producing department.
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A stapler manufacturer uses a single plantwide predetermined overhead allocation rate to allocate its indirect costs. The CFO thinks this process could be inaccurate. Which of the following statement is incorrect, if the manufacture makes the transition to using multiple predetermined overhead allocation rates?
A.
The allocation process changes because there are now multiple cost pools and multiple allocation bases.
B.
Management must analyze the expected overhead costs and separate them into a cost pool for each department.
C.
In selecting machine usage as the primary cost driver for the Production Department, management feels that there is a direct relationship between the number of machine hours used and the amount of overhead costs incurred.
D.
The use of multiple predetermined overhead allocation rates is more complex, but it may be more accurate.
Two years ago, company scientists developed an alloy with all of the properties of the raw materials used in XL-D that generates no
wastewater. Some prototype components using the new material were produced and tested and found to be indistinguishable from
the old components in every way relating to their fitness for use. The only difference is that the new alloy is more expensive than the
old raw material. The company has been test-marketing the newer version of the component, referred to as XL-C, and is currently
trying to decide its fate.
Manufacturing of both components begins in the Production Department and is completed in the Assembly Department. No other
products are produced in the plant. The following information relates to the two components:
Units produced
Raw material costs per unit
Direct labor-hours per unit-Production
Direct labor-hours per unit-Assembly
Direct labor rate per hour-all labor
Machine-hours per unit-Production
Machine-hours per unit-Assembly
Testing hours…
Multiple or departmental overhead rates are considered preferable to a single plantwide overhead rate when which of the following occurs?
Group of answer choices
individual cost drivers cannot accurately be determined with respect to the cause-and-effect relationships.
various products are manufactured that do not pass through the same departments or use the manufacturing processes.
manufacturing is limited to a single product flowing through a series of identical processes.
cost drivers, such as direct labor hour, are the same for all processes.
Chapter 7 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 7 - Describe the two-stage allocation process for...Ch. 7 - Why must support service costs be assigned to...Ch. 7 - Explain how allocation of support service costs is...Ch. 7 - Prob. 4DQCh. 7 - Explain how allocating support service costs will...Ch. 7 - Prob. 6DQCh. 7 - Explain why it is better to allocate budgeted...Ch. 7 - Why is it desirable to allocate variable costs and...Ch. 7 - Explain why either normal or peak capacity of the...Ch. 7 - Explain why variable bases should not be used to...
Ch. 7 - Prob. 11DQCh. 7 - Explain the difference between the direct method...Ch. 7 - The reciprocal method of allocation is more...Ch. 7 - What is a joint cost? How does it relate to...Ch. 7 - How do joint costs differ from other common costs?Ch. 7 - The expected costs for the Maintenance Department...Ch. 7 - Prob. 2CECh. 7 - Valron Company has two support departments, Human...Ch. 7 - Refer to Cornerstone Exercise 7.3. Now assume that...Ch. 7 - Refer to Cornerstone Exercise 7.3. Now assume that...Ch. 7 - Refer to Cornerstone Exercise 7.3 and solve for...Ch. 7 - Orchard Fresh, Inc., purchases apples from local...Ch. 7 - Refer to Cornerstone Exercise 7.7. Assume that...Ch. 7 - Refer to Cornerstone Exercise 7.7. Assume that...Ch. 7 - A company manufactures three products, L-Ten,...Ch. 7 - Refer to Cornerstone Exercise 7.10. (Round...Ch. 7 - Classify each of the following departments in a...Ch. 7 - Prob. 13ECh. 7 - Identify some possible causal factors for the...Ch. 7 - Prob. 15ECh. 7 - Prob. 16ECh. 7 - Prob. 17ECh. 7 - Kumar, Inc., evaluates managers of producing...Ch. 7 - Refer to the data in Exercise 7.18. When the...Ch. 7 - Jasmine Company manufactures both pesticide and...Ch. 7 - Refer to the data in Exercise 7.20. The company...Ch. 7 - Eilers Company has two producing departments and...Ch. 7 - Refer to the data in Exercise 7.22. The company...Ch. 7 - Refer to the data in Exercise 7.22. The support...Ch. 7 - Alomar Company manufactures four products from a...Ch. 7 - Refer to Exercise 7.25 and allocate the joint...Ch. 7 - Pacheco, Inc., produces two products, overs and...Ch. 7 - Minor Co. has a job order cost system and applies...Ch. 7 - A CPA would recommend changing from plantwide...Ch. 7 - A company uses charging rates to allocate service...Ch. 7 - Chester Company provided information on overhead...Ch. 7 - Which of the following statements is true? a. The...Ch. 7 - Biotechtron, Inc., has two research laboratories...Ch. 7 - AirBorne is a small airline operating out of...Ch. 7 - Duweynie Pottery, Inc., is divided into two...Ch. 7 - Macalister Corporation is developing departmental...Ch. 7 - Prob. 37PCh. 7 - Welcome Inns is a chain of motels serving business...Ch. 7 - Sonimad Sawmill, Inc. (SSI), purchases logs from...Ch. 7 - Prob. 40P
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- Why would a manufacturing company with multiple production departments still prefer to use a single plantwide overhead rate?arrow_forwardActivity-based department rate product costing and product cost distortions Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: The activity-base usage quantities and units produced for the two products follow: Instructions Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is 420,000 and 294,000 for the Subassembly and Final Assembly departments, respectively. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. Determine the total and per-unit cost assigned to each product under activity-based costing. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods. production department factory overhead rate and activity-based costing methods.arrow_forwardWhen multiple production department rates are used to apply overhead to products, a. all overhead costs are first directly traced to support and production departments and then support department costs are allocated to production departments b. only fixed overhead costs are first directly traced to support and production departments and then support department costs are allocated to production departments c. all manufacturing costs are first directly traced to support and production departments and then support department costs are allocated to production departments d. support department costs are allocated to production departments and then all overhead costs are directly traced to support and production departmentsarrow_forward
- In an effort to simplify the multiple production department factory overhead rate method, the same rate can be used for all departmentsarrow_forwardIf the single plantwide overhead rate is the easiest method to allocate support department costs to production departments, why would a company use a more complicated method?arrow_forwardWhich of the following companies would be best served by a plantwide overhead rate? Multiple Choice A company that manufactures many different products and whose operations are an equal mix of labor and mechanized work. A company that manufactures many different products and whose operations are highly mechanized. A company whose products differ in batch size and complexity and consume different amounts of overhead resources. A company that manufactures few products and whose operations are labor intensive. A company whose products use overhead resources in very different ways.arrow_forward
- A process costing system is employed in those situations where: O full or absorption cost approach is not employed. where manufacturing involves a single, homogeneous product that flows evenly through the production process on a continuous basis. many different products, jobs, or batches of production are being produced each period. a service is performed such as in a law firm or an accounting firm.arrow_forwardInfo in imagesarrow_forwardWhich of the following is not a factory overhead allocation method? a.activity-based costing b.factory costing c.single plantwide rate d.multiple production department ratesarrow_forward
- One of the disadvantages of the departmental and the plantwide overhead rate methods is that OA. technological advances may decrease the effect of direct labor hours as a percentage of total manufacturing costs. B. technological advances may increase direct labor hours as a percentage of total manufacturing costs. OC. direct labor hours may decrease the effect of technological advances. OD. direct labor hours may increase the effect of technological advances.arrow_forwardWhich of the following statements is not correct concerning multiple overhead rate systems? a. In departments that are relatively machine-intensive, their overhead costs should be applied to jobs based on direct labor-hours rather than on machine-hours. b. None of the given answers. C. A company may choose to create a separate overhead rate for each of its production departments. d. A multiple overhead rate system is usually more accurate than a system based on a single plantwide overhead rate. A multiple overhead rate system is e. more complex than a system based on a single plantwide overhead rate.arrow_forwardAssume that a company makes only three products: Product A, Product B, and Product C. Currently, the company uses a traditional cost system that relies on plantwide overhead cost allocation based on direct labor-hours. It is considering replacing its traditional cost system with an activity-based costing (ABC) system for internal management purposes.The ABC system would include a total of four activities: Assembly (allocated to products based on direct labor-hours), Machine Setups (allocated to products based on number of setups), Material Handling (allocated to products based on the number of material moves), and Product Design (allocated to products based on the number of products). Product A Product B Product C Number of units produced 1,000 units 7,000 units 2,000 units Direct labor hours per unit 2 hours 2 hours 2 hours Number of setups 22 setups 50 setups 28 setups Number of material moves 600 moves 400 moves 200 moves Number of products 1 product 1 product 1…arrow_forward
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