With advancing technology and intense competitions, companies will strive to provide wider varieties of goods and services. Companies will thus produce both simple and complex products. Complex products tend to consume more non-unit level activities. Examples of non-unit level activities are setups, inspections and equipment maintenance, etc. When there is a large proportion of non-unit level activities, plant-wide overhead rate and departmental overhead rates will result in inaccurate costing. This is because the two traditional methods use unit-level cost driver that cannot capture non-unit level activities with precision. An example of unit-level cost driver is machine hours, since every product requires machine time. Usually complex products are produced in lower volume than simple products. Since the traditional costing methods use a unit-level cost driver, simple products will have higher overhead costs than the complex products. The products will thus be priced higher. The complex products, which use more non-unit level activities are priced lower. Logically, complex products are more expensive than simpler products because of their more complicated production processes. These production processes involve more non unit-level activities. The inaccurate costing leads to inaccurate prices of products, i.e. overpricing the simpler products and underpricing the complex products. The overpriced products might lead the firm to shut down its production unit due to low demand. Similarly, the underpriced complex products will have unexceptionally higher demand. This will undermine the true profits made by the firm. Because although higher demands lead to higher sales, the revenue that the firm collects are, in fact, less than what it supposed to get, if proper costing method is used, e.g. ABC Costing. Companies will incur losses instead because of the high expenses incurred that are not captured in producing the complex products. Hence, the plant-wide rate and departmental rates are no longer adequate to use for costing products.
Activity based costing refers to the methodology that identifies activities in a given organization and assigning each activity a given cost.
what is plantwide manufacturing overhead
Because in ABC costing overheads are allocated based on activities performed by departments rather based on any rate or formula that's why as much activity any department perform as much cost will be allocated which is more accurate way of allocation.
because they have no life, also they predetmined pigs
Many companies will have a 'historical' OVHD rate, or calculate a budgeted rate.Presuming budgeted or est-ovhd cost of 750,000Presuming budgeted or est-direct-labor 500,000Overhead rate = estimated overhead costs/estimated activity base750,000 / 500,000Overhead rate =1.5 or 150%Since job-labor is the basis for Applied Overhead,Applied overhead = rate from above x actual direct labor.1.5 510,000Applied overhead = 765Prorate the overhead variance to the appropriate accounts765 - 750 = variance of 15K
Cost Accounting should be the absolute role of the business. Below I have given you a high level overview of a cost control project.Process map the business operations of the company, including all products manufactured.Identify the capabilities of the present costing system and other cost history recording activitiesProcess map departmental production operations and establish the time required for each operation during the production of each product.Prepare a master bill of material specification sheet for each product.Prepare a departmental material specification sheet showing the quantity, name and description of the materials that go into departmental operations.Prepare a departmental operations sheet showing the production operations of each department.Establish a direct labor burden factor to be applied to production labor rates.Establish overhead absorption factors to be applied to appropriate cost items.
what is plantwide manufacturing overhead
Because in ABC costing overheads are allocated based on activities performed by departments rather based on any rate or formula that's why as much activity any department perform as much cost will be allocated which is more accurate way of allocation.
Departmental overhead rates are an expense assigned to products associated with a particular department. Overhead rates help businesses remain within the boundaries of a budget.
Incorporating departmental overhead costs in your prices helps you cover the costs of production. Unfortunately, it may make your price more than your competitors.
An aluminium alloy is adequate.
The benefit of determining overhead absorption rates, according to departments is that it is usually hard to pin certain overhead costs to specific products. It is better for each department to relate to a certain overhead than a specific product.
In Blanket Overhead Absorption Rate applied is the same however it may differ if a company follow Departmental method Or frther break - up method
basically yh fam, mans got this question aswell, so good try! call me sometime! villa 4 champions league!
The terms overhead and profit are used together by a business in reference to their profit and expenses. Insurance companies pay overhead and profit on property insurance claims.
because they have no life, also they predetmined pigs
The terms overhead and profit are used together by a business in reference to their profit and expenses. Insurance companies pay overhead and profit on property insurance claims.
Over 45% of U.S. companies are utilizing international outsourcing as a key component to lower overhead costs. Notable companies include Nike, Bank of America and Citi.