Question 1

The plantwide overhead rate is total plantwide allocation base divided by total budgeted plantwide overhead cost.

Accepted Answer

The plantwide overhead rate is calculated by dividing the total budgeted plantwide overhead cost by the total plantwide allocation base.

Question 2

The departmental overhead rate method uses a different overhead rate for each production department.

Accepted Answer

The departmental overhead rate method calculates a separate overhead rate for each production department based on the costs and activities specific to that department. This allows for a more accurate allocation of overhead costs to the products or services produced in each department.

Question 3

The activity-based costing method uses volume-based measures to allocate overhead costs.

Accepted Answer

The activity-based costing method allocates overhead costs based on the activities that drive those costs, rather than using volume as the sole basis for allocation.

Question 4

The plantwide overhead rate is determined using volume-related measures.

Accepted Answer

The plantwide overhead rate is calculated by dividing the total estimated overhead costs by the total estimated volume-related measures, such as direct labor hours or machine hours. This results in a rate that can be applied to products or departments to allocate overhead costs.

Question 5

By definition, costs classified as overhead are consumed in basically the same manner regardless of the process involved.

Accepted Answer

Overhead costs are not consumed in the same manner regardless of the process involved; they can vary significantly depending on the activity or process, including costs like utilities, rent, and administrative expenses that are not directly tied to a specific product or service production.

Question 6

Data concerning volume-related measures are readily available in most manufacturing settings.

Accepted Answer

Volume-related measures, such as production output and material usage, are typically tracked and analyzed in manufacturing settings to optimize efficiency and productivity. Therefore, data related to these measures are readily available.

Question 7

The cost to heat a manufacturing facility can be directly linked to the number of units produced.

Accepted Answer

The cost to heat a manufacturing facility is primarily related to factors such as the size of the facility, insulation quality, external weather conditions, and heating efficiency, rather than the number of units produced.

Question 8

Departments are the cost objects when the plantwide overhead rate method is used.

Accepted Answer

In the plantwide overhead rate method, the entire manufacturing operation or plant is considered as a single cost object, not individual departments.

Question 9

The departmental overhead rate method allows each department to have its own overhead rate and its own allocation base.

Accepted Answer

The departmental overhead rate method allows for each department to have a unique overhead rate based on their individual costs and allocation bases.

Question 10

Overhead costs are not directly related to production and cannot be traced to units of product like direct materials and direct labor can.

Accepted Answer

Overhead costs, also known as indirect costs, include expenses such as rent, utilities, and administrative salaries. These costs cannot be easily allocated to specific units of production, making them less directly related to the production process than direct materials and direct labor costs.

Question 11

The unit of product is the cost object when the plantwide overhead rate method is used.

Accepted Answer

In the plantwide overhead rate method, the entire overhead costs are allocated to all products using a single predetermined overhead rate based on a chosen cost driver. The unit of product becomes the cost object, and therefore, the answer is true.

Question 12

Examples of volume-related measures include direct labor hours and machine hours.

Accepted Answer

Direct labor hours and machine hours are examples of volume-related measures as they relate to the amount of work being done by employees or machines, which impacts the overall volume of production or service delivery.

Question 13

Products are the first stage cost objects when using a departmental overhead rate method.

Accepted Answer

In the departmental overhead rate method, departments or cost centers are the first stage cost objects, as overhead costs are first allocated to departments based on their activities and then to products based on the departmental overhead rates.

Question 14

Product costs consist of direct labor, direct materials, and overhead (indirect) costs.

Accepted Answer

This is the definition of product costs, which includes the three main components of direct labor, direct materials, and overhead costs.

Question 15

Distorted product cost information can result in poor decisions.

Accepted Answer

Distorted product cost information, such as inaccurate or incomplete data, can lead to incorrect pricing decisions, inefficient use of resources, and ultimately, lower profits or even losses. Therefore, it is important to ensure that product cost information is accurately and thoroughly calculated and reported.

Question 16

The departmental overhead rate method uses the same overhead rate for each production department.

Accepted Answer

The departmental overhead rate method calculates a separate overhead rate for each production department, rather than using the same rate for all departments.

Question 17

The departmental overhead rate method involves the following four steps: 1) Assign overhead costs to departmental cost pools, 2) select an allocation base for each department, 3) compute overhead allocation rates for each department, and 4) use departmental overhead rates to assign overhead costs to products.

Accepted Answer

This statement correctly outlines the four steps involved in the departmental overhead rate method.

Question 18

Activities are the cost objects of the second stage of ABC.

Accepted Answer

The answer of Activities are the cost objects of the...

Question 19

Overhead costs are indirect costs so assigning these costs to products requires an allocation method.

Accepted Answer

Overhead costs, such as factory rent and utilities, are not directly tied to a specific product and need to be allocated to different products based on an allocation method.

Question 20

The premise of ABC is that it takes activities to make products and provide services and these activities drive costs.

Accepted Answer

This is the basic premise of Activity-Based Costing (ABC) which is a cost management tool used by companies to identify activities that drive costs and allocate those costs to products or services based on their usage of those activities.

Quiz 4: Activity-Based Costing and Analysis