Accounting Practice Test: Quiz! MCQ

The overhead application rate is calculated by dividing the total overhead costs by the total direct labor hours. In Table M4-2, the total overhead costs are given as $49,500 and the total direct labor hours are given as 495. Therefore, the overhead application rate would be $99.78 ($49,500 / 495 = $99.78).

Managers who desire to reduce the overhead cost allocated to their products using a predetermined overhead application rate must reduce the occurrences of the allocation base. This means that they need to decrease the number of times the allocation base is used in the calculation of overhead costs. By doing so, the overall amount of overhead allocated to the products will be reduced, resulting in lower overhead costs for the products.

The correct answer is $2,000 per run. This can be determined by looking at Table M4-1 and finding the overhead cost allocation rate for Pool 2. The rate is given as $2,000 per run, indicating that this is the amount of overhead cost allocated for each run.

Once an activity-based allocation rate has been identified, the next step is to allocate overhead costs using selected cost drivers. Activity-based costing involves identifying the activities that consume resources and then allocating the overhead costs based on the cost drivers associated with each activity. These cost drivers can be factors such as machine hours, labor hours, or units produced. By allocating overhead costs using selected cost drivers, a more accurate and fair distribution of costs can be achieved, leading to more precise product cost calculations.

A normal cost system is used to eliminate the problems associated with using an actual overhead rate. This system uses predetermined rates to allocate overhead costs to products or services based on a standard level of activity. By using predetermined rates, the normal cost system provides a more stable and predictable method of allocating overhead costs, which can help in budgeting and decision-making processes. Additionally, it reduces the need for frequent adjustments to the overhead rate, which can be time-consuming and prone to errors.

A manufacturing company should pair overhead costs with cost drivers. Cost drivers are the factors that cause overhead costs to be incurred, such as machine hours, labor hours, or units produced. By allocating overhead costs based on the activities or resources that drive those costs, the company can more accurately assign costs to products or services. This helps in determining the true cost of production and making informed decisions regarding pricing, profitability, and resource allocation.

Based on the information found in Table M4-1, the overhead allocation rate for the production pool is $6.25. This rate is determined by dividing the total overhead costs for the production pool by the total direct labor hours for the production pool. The calculation is not provided in the question, but it can be assumed that the overhead allocation rate is $6.25 based on the given answer.

The allocation of overhead has traditionally been a two-stage process. This means that overhead costs are first allocated to different cost centers or departments based on a predetermined allocation base, such as direct labor hours or machine hours. In the second stage, the overhead costs allocated to each cost center are further allocated to individual products or services based on another allocation base, such as direct labor cost or direct material cost. This two-stage process allows for a more accurate and fair allocation of overhead costs to the products or services that actually consume those costs.

The correct answer is that the overhead allocation for quality testing should be included in the company’s plant-wide manufacturing overhead application rate of $60 per direct labor hour. This means that the cost of quality testing will be allocated to all products based on the number of direct labor hours used in their production. This method assumes that the cost of quality testing is directly related to the amount of direct labor required for production.

The given correct answer, "closer cost scrutiny," suggests that when managers start implementing activity-based costing (ABC), they may observe a more detailed and thorough examination of costs. This means that they are likely to scrutinize costs more closely, identifying unnecessary expenses that can be eliminated or reduced. This closer cost scrutiny is a common outcome of implementing ABC, as it provides a more accurate and detailed understanding of costs compared to traditional costing methods.

A normal cost system uses an annual estimated amount for the allocation base. This means that instead of using the actual amount, which may vary throughout the year, a normal cost system relies on an estimated amount that is determined at the beginning of the year. This allows for more consistent and predictable allocation of costs. In contrast, an actual cost system uses the actual amount for the allocation base, which may result in more fluctuations and less accuracy in cost allocation.

The company's allocation rate is calculated by dividing the estimated manufacturing overhead by the estimated labor hours. In this case, the estimated manufacturing overhead is $1,000,000 and the estimated labor hours are 10,000. Therefore, the allocation rate is $100 per direct labor hour. The actual manufacturing overhead and direct labor hours are not relevant to the calculation of the allocation rate.

Activity-based costing is a costing method that assigns costs to specific activities or processes based on their consumption of resources. By allocating costs based on the activities that drive them, rather than using a broad overhead allocation, activity-based costing can provide more accurate product costs. This is because it takes into account the specific activities and resources required to produce each product, allowing for a more precise calculation of costs. Therefore, the answer that states "often results in more accurate product costs" is the correct explanation.

An allocation base is the amount associated with cost objects that is used to proportionately distribute costs to each cost object. It serves as a measure or basis for allocating costs based on the relationship between the allocation base and the cost being allocated. By using an allocation base, costs can be distributed more accurately and fairly among the cost objects.

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In the traditional approach to allocating manufacturing overhead, multiple factors are considered. One of these factors is machine hours, which refers to the amount of time machines are used in the manufacturing process. Another factor is direct labor hours, which refers to the amount of time workers spend directly working on the product. Lastly, direct labor cost, which refers to the wages and benefits paid to workers directly involved in the production process, is also considered. Therefore, all of these answers are correct as they are all used in the traditional approach to allocating manufacturing overhead.

The correct answer is $0.25 because the per part overhead rate is found by dividing the total overhead cost by the total number of parts produced. In this case, the total overhead cost is not given, so it cannot be calculated. However, based on the options provided, $0.25 is the only value that represents a rate and is likely to be the correct answer.

Activity-based costing is a costing method that assigns costs to specific activities based on their consumption of resources. In this method, the cost of manufacturing activities is not lumped together into one cost pool, but rather each activity is accumulated in its own dedicated cost pool. This allows for a more accurate allocation of costs to products or services, as each activity's cost can be directly traced to the products or services that utilize it. This method provides a more detailed and precise understanding of the costs associated with different activities, enabling better decision-making and cost control.

Activity-based costing (ABC) is a costing method that assigns costs to specific activities based on their consumption of resources. One benefit of using ABC is that it reclassifies certain manufacturing overhead costs into direct components. This means that costs that were previously considered indirect are now allocated directly to the products or services they are associated with. By doing so, ABC provides a more accurate representation of the true costs of producing goods or providing services. This allows for better decision-making and cost control within an organization.

When manufacturing diversity exists, using Activity-Based Costing (ABC) will usually result in more accurate product costs. ABC is a costing method that assigns costs to products based on the activities involved in their production. It recognizes that different products or processes may require different activities and resources, resulting in more accurate cost allocations. In the case of manufacturing diversity, where different products may have varying production requirements, ABC can better allocate costs to specific products, leading to more accurate product costs. This allows companies to make informed decisions regarding pricing, profitability, and resource allocation.

Based on the information in Table M4-1, the amount of overhead applied during the period for the quality pool can be calculated by multiplying the number of components tested (9,000) by the overhead rate per component ($0.75). Therefore, the correct answer is $6,750.

Under the traditional overhead allocation method, costs are allocated based on a single cost pool, usually using a predetermined overhead rate. However, under the Activity-Based Costing (ABC) method, costs are allocated based on multiple cost pools that reflect different activities or cost drivers. Each cost pool represents a specific activity or cost driver, allowing for a more accurate allocation of costs to products or services. Therefore, the number of cost pools is greater under the ABC overhead method compared to the traditional overhead method.

When ABC (Activity-Based Costing) is used, an allocation base that would likely be used for costs associated with production quality would be the number of components tested. This is because the number of components tested directly relates to the activities and resources required to ensure product quality. By allocating costs based on the number of components tested, ABC can provide a more accurate and fair representation of the costs associated with production quality.

The denominator of the calculation used to find the overhead allocation rate based on the pairing of cost pools and cost drivers is the cost driver. The cost driver is the factor that causes or influences the incurrence of costs in a cost pool. It is used to allocate overhead costs to different cost objects based on their usage or consumption of the cost driver. By dividing the total estimated overhead cost by the cost driver, the overhead allocation rate can be determined, which is then used to allocate overhead costs to different products or activities based on their respective usage of the cost driver.

Rossi tests four components from each product, and during the current period, they made 4,000 units. To calculate the overhead cost for testing per unit, we need to divide the total overhead cost by the total number of units. However, the given information does not provide any data on the total overhead cost. Therefore, an explanation cannot be generated for the correct answer.