Chapter 8-2

Question 1

traces direct costs to output by multiplying standard prices or rates by standard quantities of inputs allowed for actual outputs produced

Answer 1

standard costing system

Question 2

allocates overhead costs based on standard overhead costs rates times the standard quantities of allocation bases allowed for actual outputs produced

Answer 2

overhead allocation

Question 3

standard costing simplifies recordkeeping as it eliminates the need to track actual overhead costs or actual quantities of cost allocation bases used

Answer 3

simplified recordkeeping

Question 4

managers need to determine standard overhead cost rates for variable and fixed overhead based on planning amounts and standard quantities of allocation bases

Answer 4

standard overhead cost rates

Question 5

calculated by dividing budgeted variable costs by the quantity of the cost allocation base

Answer 5

budgeted variable overhead cost rate

Question 6

calculated by dividing budgeted fixed costs by the quantity of the cost allocation base

Answer 6

budgeted fixed overhead cost rate

Question 7

budgeted variable overhead cost allocation rates are developed in four steps

Answer 7

step 1.choose the period for the budget
step 2. select the cost allocation bases
step 3. identify variable overhead costs
step 4. compute the rate per unit of the cost allocation base

Question 8

• webb uses a 12 month budget period to reduce the influence of seasonablity and varying output
  -annual rates save managers time compared to setting monthly rates
  which step in developing budgeted variable overhead cost allocation rates is this?

Answer 8

step 1. choose the period for the budget

Question 9

• webb uses machine hours as the cost allocation base, estimating 0.40 machine hours per output unit
• for 144,000 jackets, webb budgets 57,600 machine hours
  which step in developing budgeted variable overhead cost allocation rates is this?

Answer 9

step 2. select the cost allocation bases

Question 10

• webb groups all variable overhead costs (energy, maintenance, support, indirect materials, labor) into a single cost pool
• total budeted variable overhead costs for 2020 are $1,728,000
  which step in developing budgeted variable overhead cost allocation rates is this?

Answer 10

step 3. identify variable overhead costs

Question 11

• divide total budgeted costs (1,728,000) by total machine hours (57,600) to get $30 per machine hour
• calculate the budgeted variable overhead cost rate per output unit
  -budgeted variable overhead cost rate per output unit = 0.40 hours per jacket *$30 per hour = $12 per jacket
  which step in developing budgeted variable overhead cost allocation rates is this?

Answer 11

step 4. compute the rate per unit of the cost allocation base

Question 12

remain constant over a period despite changes in activity levels, unlike variable costs

Answer 12

fixed overhead costs

Question 13

are included in flexible budgets but do not change within the relevant range of activity

Answer 13

fixed costs

Question 14

managers can reduce fixed costs by actions such as

Answer 14

• selling equipment
  -laying off employees
  but these costs do not automatically adjust with activity levels

Question 15

4 stpes to develop the budgeted fixed overhead rate

Answer 15

step 1. choose the budget period, typically 1 year, to smooth out seasonal effects
step 2. select the cost allocation base. webb uses machine hours as the base, assuming fixed overhead costs will align with machine hours in the long run
step 3. identify fixed overhead costs associated with thte cost allocation base
step 4. compute the rate per unit of the cost allocation base

Question 16

choose the budget period, typically 1 year, to smooth out seasonal effects
which step to develop the budgeted fixed overhead rate is this?

Answer 16

step 1

Question 17

select the cost allocation base. webb uses machine hours as the base, assuming fixed overhead costs will align with machine hours in the long run
which step to develop the budgeted fixed overhead rate is this?

Answer 17

step 2

Question 18

identify fixed overhead costs associated with thte cost allocation base
which step to develop the budgeted fixed overhead rate is this?

Answer 18

step 3

Question 19

compute the rate per unit of the cost allocation base
which step to develop the budgeted fixed overhead rate is this?

Answer 19

step 4

Question 20

when $12 per jacket is found to be the budgeted variable overhead cost rate per output unit what does that mean

Answer 20

its the amount by which managers expect Webb’s variable overhead costs to change when the output changes