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Overhead allocation based on volume alone is a method of distributing indirect costs, such as administrative expenses and utilities, to products or services based solely on their production volume or quantity. This approach assumes that all products consume overhead resources in proportion to the number of units produced, often using a single allocation base like direct labor hours or machine hours. While this method is straightforward, it can lead to inaccuracies if products require varying amounts of overhead resources, potentially distorting cost information and decision-making.
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What is departmentalisation of overhead?
Departmentalisation of overhead means allocation of overhead cost base on predertmined rate in case of absorption method and based in activities in case of activity based costing.
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.
Why activity based costing?
Activity based costing allocate the overhead expenses based on activities performed and that's why it is an accurate way to allocate overhead expenses while in absorption costing, overheads are allocated based on some ratios or predetermined rate which is not accurate method of allocation of cost.
How do you determine multiple production department factory overhead rates?
To determine multiple production department factory overhead rates, first, identify the total overhead costs for each department and the appropriate allocation base, such as machine hours or labor hours. Next, gather data on the actual usage of the chosen allocation base for each department. Finally, divide the total department overhead costs by the total units of the allocation base to calculate the overhead rate for each department. This approach ensures that costs are accurately assigned based on the specific activities and resources utilized in each department.
Describe how Activity-based costing can improve overhead cost allocation in company that produce a diverse line of products.?
Activity-based costing (ABC) enhances overhead cost allocation by assigning costs to specific activities related to each product, rather than using a broad averaging method. This allows companies with diverse product lines to better understand the true cost drivers and resource consumption associated with each product. By identifying and analyzing activities, ABC helps in pinpointing inefficiencies and enables more accurate pricing strategies, ultimately leading to improved profitability and better resource allocation. As a result, companies can make more informed decisions regarding product development and discontinuation.
What is departmentalisation of overhead?
Departmentalisation of overhead means allocation of overhead cost base on predertmined rate in case of absorption method and based in activities in case of activity based costing.
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.
Why activity based costing?
Activity based costing allocate the overhead expenses based on activities performed and that's why it is an accurate way to allocate overhead expenses while in absorption costing, overheads are allocated based on some ratios or predetermined rate which is not accurate method of allocation of cost.
How do you determine multiple production department factory overhead rates?
To determine multiple production department factory overhead rates, first, identify the total overhead costs for each department and the appropriate allocation base, such as machine hours or labor hours. Next, gather data on the actual usage of the chosen allocation base for each department. Finally, divide the total department overhead costs by the total units of the allocation base to calculate the overhead rate for each department. This approach ensures that costs are accurately assigned based on the specific activities and resources utilized in each department.
Why molarity not based on the volume of solvent alone?
Molarity is based on the total volume of the solution (solvent + solute), because the concentration of a solution is defined as the amount of solute dissolved in a given volume of the solution. By considering the total volume, we can accurately determine the concentration of the solute in the solution.
Describe how Activity-based costing can improve overhead cost allocation in company that produce a diverse line of products.?
Activity-based costing (ABC) enhances overhead cost allocation by assigning costs to specific activities related to each product, rather than using a broad averaging method. This allows companies with diverse product lines to better understand the true cost drivers and resource consumption associated with each product. By identifying and analyzing activities, ABC helps in pinpointing inefficiencies and enables more accurate pricing strategies, ultimately leading to improved profitability and better resource allocation. As a result, companies can make more informed decisions regarding product development and discontinuation.
One key responsibility of Multiagency Coordination Systems is to?
Make resource allocation decisions based on incident priorites
What are the inadequacies of traditional method of overhead absorption?
Traditional overhead absorption methods often allocate overhead costs based on a single metric, such as direct labor hours or machine hours, which can lead to inaccurate cost assignments. This approach fails to account for the complexity of modern production environments where multiple activities drive overhead costs. Consequently, it can result in distorted product costs, misinformed pricing strategies, and suboptimal resource allocation. Additionally, it may not reflect the actual consumption of resources by different products or services.
What is the difference between Activity-based costing and traditional cost accounting?
Activity-based costing is a more accurate cost management system than TCA. One would use the ABC method when overhead is high, products are diverse, cost of errors high and competition is stiff. Traditional Cost Accounting is unable to calculate the 'true' cost of the product. TCA arbitrarily allocates overhead to the costs of objects. Total company's overhead is allocated to the products based on volume based measure e.g. labor hours, machine hours.
What are some methods used to allocate support costs?
Support costs can be allocated using several methods, including direct allocation, where costs are assigned directly to departments based on their usage, and activity-based costing, which assigns costs based on actual activities that drive overhead. Another common method is the step-down approach, where support costs are allocated sequentially to departments based on a predetermined hierarchy. Finally, the reciprocal method considers the mutual services provided among departments, allowing for a more accurate allocation of shared costs.
Is Overhead allocated using a percentage-based or quantity-based price?
Overhead can be allocated using either a percentage-based or quantity-based method, depending on the costing system in place. In a percentage-based approach, overhead is applied as a percentage of direct costs, such as direct labor or materials. In contrast, a quantity-based method allocates overhead based on a specific activity level, such as machine hours or units produced. The choice of method typically reflects the nature of production and the business’s accounting practices.
How do you compute predetermined overhead rate as a percentage of direct labor costs and direct labor hours?
Predetermined overhead rate based on direct labor cost = Budgeted overhead cost / direct labor cost / 100 Predetermined overhead rate based on direct labor cost = budgeted overhead cost / direct labor hours.
