Question 1

A departmental overhead rate is calculated by dividing the total estimated departmental overhead cost pool by the estimated total amount of the department's cost allocation base.

Accepted Answer

This is the correct formula for calculating a departmental overhead rate.

Question 2

Merchandising and service companies, as well as governmental agencies, can use refined cost allocation systems to provide their managers with better cost information.

Accepted Answer

Refined cost allocation systems can help provide more accurate cost information to managers in any type of organization, including merchandising and service companies, as well as governmental agencies.

Question 3

One condition that favors using plantwide overhead rates, rather than departmental overhead rates, is that different jobs or products use the departments to a different extent.

Accepted Answer

Using plantwide overhead rates is less accurate when different jobs or products use the departments to a different extent, as it does not account for the specific resources each job or product consumes in each department. Departmental overhead rates are favored in such scenarios for more accurate costing.

Question 4

Cost distortion occurs when some products are overcosted while other products are undercosted by the cost allocation system.

Accepted Answer

Cost distortion can occur when the cost allocation system is not able to accurately allocate costs to products or services, resulting in some products being overcosted and others being undercosted. This can lead to incorrect pricing decisions and inefficient resource allocation.

Question 5

If a company's plantwide overhead rate is allocated based on direct labor hours, then each job will be allocated manufacturing overhead based on the total direct labor hours incurred on the job, regardless of the manufacturing department in which those hours were incurred.

Accepted Answer

This is the definition of a plantwide overhead rate system, where overhead costs are allocated based on a single allocation base (in this case, direct labor hours) for the entire plant.

Question 6

As a result of cost distortion, some products will be overcosted while other products will be undercosted.

Accepted Answer

When a company uses a single predetermined overhead rate, it may allocate too much indirect cost to some products or departments and too little to others. This results in some products being overcosted and some being undercosted.

Question 7

When overhead is allocated to every product using the same manufacturing overhead rate, this rate is called the departmental overhead rate.

Accepted Answer

When overhead is allocated to every product using the same manufacturing overhead rate, this rate is called the plantwide overhead rate. The departmental overhead rate is a rate that is calculated separately for each department within a company to allocate overhead costs more accurately to each department's specific products or services.

Question 8

The estimated total manufacturing overhead costs that will be incurred in each department in the coming year are often referred to as activity cost pools.

Accepted Answer

The answer of The estimated total manufacturing overhead costs that...

Question 9

Companies often refine their cost allocation systems to minimize the amount of cost distortion caused by the simpler cost allocation systems.

Accepted Answer

Companies recognize the importance of accurate cost allocation, and therefore refine their cost allocation systems to minimize cost distortion. This helps them allocate costs more accurately, leading to better decision making and improved performance.

Question 10

To determine the amount of overhead allocated, the overhead rate is divided by the cost driver.

Accepted Answer

To determine the amount of overhead allocated, the cost driver is multiplied by the overhead rate, not divided.

Question 11

The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base.

Accepted Answer

This is a correct statement about how to calculate the plantwide overhead cost allocation rate.

Question 12

With increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products.

Accepted Answer

As competition increases, it becomes essential for managers to have more accurate estimates of product costs. This is because they need to set competitive prices that will help them stay ahead of their competitors while maximizing profitability. Accurate cost estimates also help managers to identify the most profitable product lines and make informed decisions about which products to focus on.

Question 13

Only manufacturers can use refined costing systems to allocate manufacturing overhead.

Accepted Answer

Refined costing systems can be used by various entities, not just manufacturers. Service providers, retailers, and other types of businesses can also use refined costing systems to allocate overhead costs.

Question 14

One condition that favors using a departmental overhead rate, rather than plantwide overhead rates, is that different departments incur different amounts and types of manufacturing overhead.

Accepted Answer

Using departmental overhead rates allows for more accurate allocation of overhead costs because it recognizes that different departments have unique overhead cost drivers. Plantwide overhead rates assume that all departments use overhead costs equally, which may not be the case.

Question 15

The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs of the department by the estimated total quantity of the department's cost allocation base.

Accepted Answer

The plantwide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs for the entire plant by the estimated total quantity of the plant's cost allocation base, not just a single department's.

Question 16

A plantwide overhead rate is calculated by multiplying the estimated total manufacturing overhead costs for the year by estimated total amount of the allocation base for the year.

Accepted Answer

The answer of A plantwide overhead rate is calculated by...

Question 17

A plantwide overhead rate is calculated by dividing the estimated total manufacturing overhead costs for the year by estimated total amount of the allocation base for the year.

Accepted Answer

This is the correct formula for calculating a plantwide overhead rate.

Question 18

Companies that use departmental overhead rates trace direct materials and direct labor to cost objects just as they would in a traditional costing system.

Accepted Answer

This statement is true. In departmental overhead rate method, direct materials and direct labor are traced to cost objects just like in traditional costing. However, the difference lies in how overhead costs are allocated to cost objects, where departmental rates are used instead of a plant-wide overhead rate.

Question 19

Using departmental overhead rates is generally less accurate than using a single plantwide overhead rate.

Accepted Answer

Using departmental overhead rates can sometimes be more accurate since it allows for a better allocation of overhead costs based on the unique activities and resources required in each department. However, it may also be less accurate if there is a significant overlap or shared use of resources between departments. A single plantwide overhead rate may be simpler to use but may not fully capture the differences in resource consumption across departments. Ultimately, the accuracy of either method depends on the specific circumstances and allocation methodology used.

Question 20

Refined costing systems can be used to allocate any indirect costs to any cost objects.

Accepted Answer

Refined costing systems make it possible to allocate indirect costs to any cost objects, making it more accurate and precise.

Quiz 4: Activity-Based Costing, Lean Operations, and the Costs of Quality