Accounting 202: Trivia Quiz! Exam

The predetermined manufacturing overhead rate is calculated before the period starts because it is used to allocate overhead costs to products or services. By determining the rate in advance, the company can estimate its overhead costs based on factors such as labor hours, machine hours, or direct labor costs. This allows for better budgeting and planning for the upcoming period.

Cost allocation refers to the process of assigning manufacturing overhead costs and other indirect costs to specific cost objects, such as products or departments. This is done in order to determine the total cost of producing a product or providing a service. Cost allocation is an important aspect of cost accounting as it helps in accurately determining the cost of production and making informed decisions regarding pricing, profitability, and resource allocation.

Cost of goods sold represents the cost incurred by a company to produce or acquire the goods that are sold to customers. It includes the cost of raw materials, labor, and overhead expenses. The cost of goods sold is calculated after the completion of the production process and the goods are ready to be sold. Therefore, it comes last in the flow of costs as it represents the final cost associated with the goods that have been sold to customers.

Payroll costs for factory employees who do NOT work directly on the product are considered manufacturing overhead. Manufacturing overhead includes indirect costs such as employee salaries, benefits, and other expenses that are incurred in the manufacturing process but are not directly attributable to the production of a specific product. These costs are necessary for the overall operation of the factory and are allocated to the products indirectly through overhead allocation methods.

Finished goods inventory comes third in the flow of costs because it represents the cost of producing goods that are ready for sale but have not yet been sold. The flow of costs typically starts with raw materials inventory, which are the materials used to produce goods. These raw materials are then moved into the work in process inventory, where they are transformed into partially completed goods. Finally, the goods are completed and transferred to the finished goods inventory, where they await sale. Cost of goods sold represents the cost of the goods that have been sold and is typically recorded after the finished goods inventory.

Manufacturing overhead can be allocated on the basis of machine hours, direct labor hours, or direct labor costs. This means that the allocation of manufacturing overhead can be determined using any of these factors, depending on the specific requirements and circumstances of the manufacturing process. The choice of allocation basis may vary from one company to another or even within different departments of the same company.

The last step in implementing a manufacturing overhead allocation system is to allocate some manufacturing overhead to each individual job. This step involves assigning a portion of the total manufacturing overhead costs to each job based on a predetermined allocation base. This allows for a more accurate determination of the actual costs associated with each job and helps in determining the profitability of each job.

A predetermined manufacturing overhead rate is an estimated rate that is calculated before the start of the year to allocate manufacturing overhead costs to products or services. This rate is based on historical data and is used to estimate the amount of overhead costs that will be incurred for each unit of a cost driver, such as direct labor hours or machine hours. By using a predetermined rate, companies can more accurately allocate overhead costs to products and services, which helps in setting prices and making informed business decisions.

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Manufacturing overhead costs are allocated during the period because these costs are incurred throughout the production process and are not directly attributable to specific units of production. Therefore, they need to be allocated to all units produced during the period based on a predetermined allocation method, such as direct labor hours or machine hours. This ensures that the overhead costs are distributed fairly and accurately among the units produced, allowing for a more accurate determination of the cost of goods sold and the profitability of the company.

The correct answer is to estimate total manufacturing overhead costs for the coming year. This is the first step in implementing a manufacturing overhead allocation system. By estimating the total manufacturing overhead costs for the coming year, manufacturers can have a clear understanding of the expenses they will incur and can plan their budget accordingly. This estimation helps in determining the amount of overhead that needs to be allocated to each job or product. It is an essential step in the overall allocation process.