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Why is overhead allocation under ABC usually more accurate than either the plantwide overhead allocation method or the departmental overhead allocation method?
Wiki User
∙ 9y ago
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.
Wiki User
∙ 9y ago
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What would a plantwide manufacturing overhead rate be assigned to?
what is plantwide manufacturing overhead
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.
What is the difference between overhead allocation with overhead apportionment?
The following are the differences between allocation and apportionment. 1. Allocation costs are directly allocated to cost centre. Overhead which cannot be directly allocated are apportioned on some suitable basis. 2. Allocation allots whole amount of cost to cost centre or cost unit where as apportionment allots part of cost to cost centre or cost unit. 3. No basis required for allocation. Apportionment is made on the basis of area, assets value, number of workers etc.
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 overhead absorption rate is important?
In absorption costing, overhead absorption rate or blanket rate is key to spread all overheads on production of volume of product, because if we don't have the overhead absorption rate manufacturing overhead cannot be spread or there is no basis for allocation of overheads on manufactured units.
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.
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 kind of overhead allocation method results in the use of more than one overhead rate?
One method that accounts for all the overhead in a plant, for example, can be included in a single kind of overhead 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.
What is the difference between overhead allocation with overhead apportionment?
The following are the differences between allocation and apportionment. 1. Allocation costs are directly allocated to cost centre. Overhead which cannot be directly allocated are apportioned on some suitable basis. 2. Allocation allots whole amount of cost to cost centre or cost unit where as apportionment allots part of cost to cost centre or cost unit. 3. No basis required for allocation. Apportionment is made on the basis of area, assets value, number of workers etc.
How do I compute predetermined overhead rate as a percentage of direct labor costs?
Predetermined overhead rate = Est. total Manuf. Overhead Cost / Est. total amt of allocation base In this case, allocation base would be direct labor (as opposed to machine labor). Hope this helps
What are the best practices for overhead allocation?
The best method for allocating overhead in construction is a way that's fair. After all, the idea is to allocate (or, distribute) costs that each job shares responsibility for — meaning the job either caused or benefited from the cost The plantwide and department allocation methods are “traditional” approaches because both typically use direct labor hours, direct labor costs, or machine hours as the allocation base, and both were used prior to the creation of activity-based costing in the 1980s.
What is Primary distribution overhead cost?
Primary distribution overhead cost is also called Departmentalization of overheads. It involves apportionment and allocation of overhead costs in the service and production departments.
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.
Difference between contiguous and non contiguous memory allocation?
In a contiguous memory allocation there is no overhead during execution of a program. In a non contiguous memory allocation address translation is performed during execution.
What is the difference between contiguous and non contiguous memory allocation?
in contiguous allocation overhead during execution of a program.in non contiguous allocation address translation is performed during execution of a program..
