Question 1

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 2

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

Accepted Answer

Companies aim to minimize cost distortion by refining their cost allocation systems to ensure that costs are accurately assigned to the products or services that create them. This is done to provide a more accurate picture of the true costs involved in producing or providing the product or service.

Question 3

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 a correct statement regarding the calculation of a departmental overhead rate.

Question 4

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

In both departmental overhead rates and traditional costing systems, direct materials and direct labor costs are traced directly to cost objects, with the main difference being in how overhead costs are allocated.

Question 5

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

If different departments incur different amounts and types of manufacturing overhead, it may be more accurate to use departmental overhead rates to allocate overhead costs to products or services, instead of using a single plantwide rate. This approach can provide more precise product costing information and make it easier to identify areas where overhead costs could be reduced or managed more effectively.

Question 6

If a company uses departmental overhead allocation rates, then the amount of manufacturing overhead allocated to the job is equal to the plantwide overhead rate multiplied by the actual use of the cost allocation base.

Accepted Answer

If a company uses departmental overhead allocation rates, the amount of manufacturing overhead allocated to the job would be equal to the departmental overhead rate(s) multiplied by the actual use of the cost allocation base in each department. This is different from the plantwide overhead rate used with a single, company-wide allocation rate.

Question 7

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 8

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

Accepted Answer

Refined costing systems are designed to provide more accurate and detailed information about indirect costs, allowing for more precise allocation to specific cost objects.

Question 9

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

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

Question 10

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

Accepted Answer

Cost distortion can lead to inaccurate product costing and mismanagement of resources as resources may be allocated based on inaccurate costing information. This can lead to overpricing of some products, causing them to be less competitive, and underpricing of others, leading to a loss for the company.

Question 11

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

Plantwide overhead rate based on direct labor hours means that the total overhead costs are divided by the total direct labor hours for the entire plant. This rate is then used to allocate manufacturing overhead to each job based on its direct labor hours. Therefore, each job will be allocated overhead based on the total direct labor hours incurred on the job, regardless of the manufacturing department.

Question 12

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

Accepted Answer

Cost distortion occurs when the actual costs incurred to produce a product are different from the allocated costs assigned to that product. This can result in some products being overcosted, meaning they are assigned more costs than they actually incurred, while other products are undercosted, meaning they are assigned fewer costs than they actually incurred.

Question 13

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

With increased competition, it becomes important for managers to accurately estimate product costs to set competitive prices and focus on the most profitable products.

Question 14

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 plant-wide overhead rate. Departmental overhead rate is different because it allocates overhead to products using different overhead rates based on the department that incurs the overhead costs.

Question 15

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 16

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 17

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

Yes, refined cost allocation systems can help these types of organizations to better allocate costs and provide managers with more accurate cost information, which can inform decision-making processes.

Question 18

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 statement correctly describes the formula for calculating the plantwide overhead cost allocation rate.

Question 19

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

Accepted Answer

Refined costing systems can be used by both manufacturers and service companies to allocate overhead costs.

Question 20

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.

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