answersLogoWhite

0


Best Answer

The main reason is over-reliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.

User Avatar

Wiki User

โˆ™ 2009-05-20 01:11:50
This answer is:
๐Ÿ™
0
๐Ÿคจ
0
๐Ÿ˜ฎ
0
User Avatar

Add your answer:

Earn +20 pts
Q: Why overhead costing methods using plant-wide overhead rates or departmental overhead rates are no longer adequate for costing products and services in some companies?
Write your answer...
Submit
Related questions

What would a plantwide manufacturing overhead rate be assigned to?

what is plantwide manufacturing overhead


What are departmental overhead rates?

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.


Why is overhead allocation under ABC usually more accurate than either the plantwide overhead allocation method or the departmental overhead allocation method?

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.


What are the advantages of departmental overhead costs?

Incorporating departmental overhead costs in your prices helps you cover the costs of production. Unfortunately, it may make your price more than your competitors.


What element makes overhead sprinklers?

An aluminium alloy is adequate.


Departmental overhead absorption rate?

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.


What is a blanket overhead absorption rate How will you differentiate between blanket overhead rate and other overhead absorption rate?

In Blanket Overhead Absorption Rate applied is the same however it may differ if a company follow Departmental method Or frther break - up method


Why do companies use a predetermined overhead rate rather than actual overhead costs to apply overhead to jobs?

because they have no life, also they predetmined pigs


What is the difference between a departmental overhead absorption rate to a blanket wide overhead absorption rate?

basically yh fam, mans got this question aswell, so good try! call me sometime! villa 4 champions league!


What is Overhead and Profit?

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.


What are the factors affecting entrepreneurship development in nigeria?

1, Lack of adequate overhead facilities 2, Non-availability of capital 3, Great risk


Virtual global companies?

Virtual global companies are those that don't have a physical presence, yet they operate globally. Typically, virtual companies have lower overhead because they don't have a physical office.


Is overhead included in product cost?

Yes, most companies include overhead in all their products. There are times when businesses have to discount their products, but the price will still cover the cost of producing the item.


Discuss why overhead costing methods using plant-wide overhead rate or departmental overhead rates are no longer adequate for costing products and sevrices in other companies?

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.


How do you calculate applied overhead?

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


Do you have to have a general contractor to get overhead and profit from the insurance company?

No, there are plenty of laws and regulations that address overhead and profit. Contractors charge it and insurance companies pay it. That's the nature of the beast. The insurance company that doesn't pay it is not only an exception to the rule but runs the risk of breach of contract and bad faith lawsuits as well as sanctions by insurance departments. There has been much litigation against insurance companies that mess around with overhead and profit, including several class action lawsuits against major insurance companies.


How do you calculate overhead rate?

Overhead rate : Overhead rate = total overhead cost / direct labor OR Overhead rate = Total overhead cost / machine hours.


Why are overhead costing methods using a plantwide overhead rate no longer adequate for pricing products and services?

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. 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.


Who makes Montgomery wards garage door?

Montgomery Ward was one of many companies who had door openers manufactured by Advance Industries, who later became a subsidiary of The Overhead Door Co. Other models of similar design were branded as Moore-O-Matic, Crusader, and even Overhead Door and Touch'N'Go, after Overhead Door bought the company.


Is overhead an adverb?

Overhead can be an adverb. But it can also be an adjective or noun. Planes flying "overhead" would be an adverb. Overhead wires would be an adjective. The overhead of a business would be a noun.


How do you determine the overhead rate when applying overhead costs?

Using direct labor hours: Overhead rate = Total Overhead Expenses /Direct labor hours Using Machine hours: Overhead rate = Total Overhead Expenses /Machine hours


What is the antonym for overhead?

The antonym for overhead is under


What is the OHV Engine?

the lifters are on the overhead of the engine the lifters are on the overhead of the engine the lifters are on the overhead of the engine


What the meaning of blanket overhead rate?

Blanket overhead rate is the computation of a single overhead rate for one whole factory. Overhead rate is the percentage you get when comparing total overhead expenses to total expenses.


What is combined overhead variance?

Combined overhead variance = fixed overhead variance + variable overhead varianceFixed Overhead :which remains fixed and donot change upto certain level of productionVariable Overhead: which keep changing with the change in production units.