b b c a c b b c a c Questions
The predetermined overhead rate is the amount of manufacturing overhead that is estimated to be applied to each product or department depending on the cost system used (job order costing or process costing). It typically is estimated at the beginning of each period by dividing the estimated manufacturing overhead by an activity base. While it is most commonly a year, the period can be a year, quarter, or month as determined by management. In traditional allocation systems, that base is typically direct labor hours, direct labor dollars, or machine hours. In activity-based costing systems, the activity base is one or more cost drivers.
Non-value-added costs can often be eliminated since they are rarely essential, and identifying them helps managers reduce their costs.
Answers may vary but should be similar to the following:
Activity-based costing has multiple cost drivers and focuses on the overhead-related activities performed during manufacturing. Traditional allocation has a single unit-level base for allocating overhead and focuses on the units of production.
Estimated overhead costs are first allocated to activity cost pools. Then, an allocation rate is determined based on the estimated usage of the cost driver for that pool. Then the costs are allocated to each product based on that product’s cost driver usage.
The traditional method of applying overhead does not allocate overhead as precisely as with the ABC method. Management relies on the costing information when setting selling prices and bidding on service jobs. If the costing method is not accurate, some products may be considered profitable under traditional allocation, when those products are actually operating at a loss
While variable costing is not acceptable for financial reporting purposes, some managers prefer variable costing because they believe fixed costs are period costs and do not change during the period. Variable costing separates variable and fixed manufacturing overhead, and using only variable costs allows them to make decisions based on the more reliable variations in unit costs.
Yes, as long as the system computes the amount of fixed manufacturing overhead per unit. The total amount can be expensed under variable costing and assigned to overhead produced during absorption costing. This will allow a portion to be included in ending inventory for absorption costing and not included for variable costing. Exercise Set A
What is the activity rate for each cost pool?
Compute the overhead rate for each activity.
What is the predetermined overhead rate for each activity?
What would be the predetermined rate for each cost pool?
Exercise Set B
What is the activity rate for each cost pool?
Compute the overhead rate for each activity.
What is the predetermined overhead rate for each activity?
What would be the predetermined rate for each cost pool?
Problem Set A
If the labor rate is \(\$25\) per hour, what is the per-unit cost of each product?
They are considering adapting ABC costing and have estimated the cost drivers for each pool as shown: Recent success has yielded an order for \(1,000\) tables. Assume direct labor costs per hour of \(\$20\). Determine how much the job would cost given the following activities:
It has also estimated the activities for each cost driver as follows: How much is the overhead allocated to each unit of Generic and Label?
How much does each unit cost to manufacture?
It estimates there will be five orders in the next year, and those jobs will involve: What is the total cost of the jobs?
The cost driver for each cost pool and its expected activity is shown:
Compare the overhead allocation using:
(Hint: the traditional method uses machine hours as the allocation base.)
The estimated overhead for the material cost pool is estimated as \(\$12,500\), and the estimate for the machine setup pool is \(\$35,000\). Calculate the allocation rate per unit of brass and per unit of gold using:
Compute the overhead assigned to each product under:
Selling expenses are \(\$4\) per unit and are all variable. Administrative expenses of \(\$20,000\) are all fixed. Grainger produced \(5,000\) units; sold \(4,000\); and had no beginning inventory.
Its income statement under absorption costing is: Prepare an income statement with variable costing and a reconciliation statement between both methods.
Prepare an income statement under both the absorption and variable costing methods along with a reconciliation between the two statements.
Prepare an income statement under variable costing, and prepare a reconciliation to the income under the absorption method. Problem Set B
If the labor rate is \(\$30\) per hour, what is the per-unit cost of each product?
They are considering adapting ABC costing and have estimated the cost drivers for each pool as shown: Recent success has yielded an order for \(1,500\) tables. Determine how much the job would cost given the following activities, and assuming an hourly rate for direct labor of \(\$25\) per hour:
It has also estimated the activities for each cost driver as follows: How much is the overhead allocated to each unit of Simple and Removable?
How much does each unit cost to manufacture?
Box Springs estimates there will be four orders in the next year, and those jobs will involve: What is the total cost of the jobs?
The cost driver for each cost pool and its expected activity is as follows:
Compare the overhead allocation using:
(Hint: the traditional method uses machine hours as the allocation base.)
The estimated overhead for the material cost pool is estimated as \(\$45,000\), and the estimate for the machine setup pool is \(\$55,000\). Calculate the allocation rate per unit of silver and per unit of gold using:
Compute the overhead assigned to each product under:
Selling expenses are \(\$2\) per unit and are all variable. Administrative expenses of \(\$15,000\) are all fixed, Submarine produced \(2,000\) units and sold \(1,800\). Grainger had no beginning inventory.
Its income statement under absorption costing is as follows: Prepare an income statement with variable costing and a reconciliation statement between both methods.
Prepare an income statement under both the absorption and variable costing methods along with a reconciliation between the two statements.
Prepare an income statement under variable costing and prepare a reconciliation to the income under the absorption method. Thought Provokers
Which of the following formulas can often reconcile the difference between absorption and variable costing net income *?III. Differences in income under absorption and variable costing can often be reconciled by multiplying the change in inventory (in units) by the variable manufacturing overhead cost per unit.
How do you reconcile the difference between absorption and variable income?Net income under absorption costing can be reconciled with net income under variable costing by (a) subtracting the manufacturing overheads carried forward (absorbed by closing inventories) and (b) adding the manufacturing overheads brought in (absorbed by opening inventories).
What is the difference between absorption costing income and variable costing income?Absorption costing entails allocating fixed overhead costs to all units produced for an accounting period. Variable costing includes all of the variable direct costs in COGS but excludes direct, fixed overhead costs.
How do you calculate absorption and variable costing?You can do this by following this formula:. Absorption cost per unit = (Direct Material Costs + Direct Labor Costs + Variable Manufacturing Overhead Costs + Fixed Manufacturing Overhead Costs) / Number of units produced.. A company produces 10,000 units of its product in one month.. |