Managerial Accounting Case Study
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Questions and answers
1. Under what conditions is direct labor a valid basis for allocating overhead?
Direct labor is a valid basis for allocating overhead when: (a) direct labor constitutes a significant part of total product cost, and (b) there is a high correlation between direct labor and changes in the amount of overhead costs.
2. What has happened in recent industrial history to reduce the usefulness of direct labor as the library basis for allocating overhead to products?
Recently in the industries, the amount of direct labor in many sectors has been affected and greatly reduced due to advances in com - computerized systems , to develop …show more content…
In an automated manufacturing environment, what is basis of overhead allocating is frequently more relevant than direct labor hours? The basis of allocation of overheads is often with more relevant, in many automated manufacturing environments, machine hours is a more appropriate basis on which to allocate overhead costs.
4. What is generally true about overhead allocation to high-volume products versus low-volume products under a traditional costing system?
In comparison, under a costing system based on the traditional volume, where overheads are allocated on the basis of units of production, high-volume product undoubtedly tends to absorb more overhead than the low volume product.
5. What are the principal differences between activity based costing (ABC) and traditional product costing?
Activity-Based …show more content…
Identify the cost driver that has a strong correlation to the costs accumulated in the cost pool.
Compute the overhead rate per cost driver.
Assign manufacturing overhead costs for each cost pool to products, using the overhead rates (cost per driver).
8. Explain the preparation and use of value-added/non-value-added activity flowchart in an ABC system.
A value-added/non-value-added activity flowchart is based on a systematic analysis of all the activities, actions and resource-intensive operations performed to manufacture a product or provide a service. The flow chart documenting each activity and the time spent in each activity. The flowchart can also document a proposed management reengineering manufacturing process.
9. What is an activity cost pool? An activity cost pool is the accumulated overhead cost attributed to a distinct type of activity or related activities.
10. What is cost driver?
A cost driver is any factor or activity that has a direct cause-effect relationship with the resources consumed. In ABC, cost drivers are used to assign activity cost pools to products or
Questions and answers
1. Under what conditions is direct labor a valid basis for allocating overhead?
Direct labor is a valid basis for allocating overhead when: (a) direct labor constitutes a significant part of total product cost, and (b) there is a high correlation between direct labor and changes in the amount of overhead costs.
2. What has happened in recent industrial history to reduce the usefulness of direct labor as the library basis for allocating overhead to products?
Recently in the industries, the amount of direct labor in many sectors has been affected and greatly reduced due to advances in com - computerized systems , to develop …show more content…
In an automated manufacturing environment, what is basis of overhead allocating is frequently more relevant than direct labor hours? The basis of allocation of overheads is often with more relevant, in many automated manufacturing environments, machine hours is a more appropriate basis on which to allocate overhead costs.
4. What is generally true about overhead allocation to high-volume products versus low-volume products under a traditional costing system?
In comparison, under a costing system based on the traditional volume, where overheads are allocated on the basis of units of production, high-volume product undoubtedly tends to absorb more overhead than the low volume product.
5. What are the principal differences between activity based costing (ABC) and traditional product costing?
Activity-Based …show more content…
Identify the cost driver that has a strong correlation to the costs accumulated in the cost pool.
Compute the overhead rate per cost driver.
Assign manufacturing overhead costs for each cost pool to products, using the overhead rates (cost per driver).
8. Explain the preparation and use of value-added/non-value-added activity flowchart in an ABC system.
A value-added/non-value-added activity flowchart is based on a systematic analysis of all the activities, actions and resource-intensive operations performed to manufacture a product or provide a service. The flow chart documenting each activity and the time spent in each activity. The flowchart can also document a proposed management reengineering manufacturing process.
9. What is an activity cost pool? An activity cost pool is the accumulated overhead cost attributed to a distinct type of activity or related activities.
10. What is cost driver?
A cost driver is any factor or activity that has a direct cause-effect relationship with the resources consumed. In ABC, cost drivers are used to assign activity cost pools to products or