Mew Accounting Flashcards
 Overhead can be assigned to production in one of three ways?
- Single plantwide overhead rate
2.Department overhead rate
3.Activity based costing
Advantages of plantwide overhead rate method
Information is readily available
Easy to implement
consistent with GAAP and can be used for external reporting needs
Disadvantages of plantwide overhead rate method
overhead cost may not bear any relationship with direct labor hours
All products may not use overhead cost in the same portion
Advantages of departmental overhead rate method
More accurate overhead allocations
More refined than the plantwide overhead rate method
disadvantages of departmental overhead rate method
Can distort product cost
Assumes that product are similar in volume, complexity, and batch size
Assumes that departmental overhead cost are proportional to the allocation base
Advantages of activity based costing
More accurate overhead Cost allocation
More effective overhead Cost control
Focus on relevant factors
Better management of activities
Cost of quality
Disadvantages of activity based costing
Cost to implement and maintain
Uncertainty with decisions remains
Not acceptable under GAAP
Four types of activities that caused overhead cost
Unit level
batch level
product level
facility level
Are performed to sustain facility capacity as a whole and not caused by any specific product
Facility level
Are performed on each product line and are not affected by either numbers of units or batches
Product level
Are performed only on each batch or groups of units
Batch level
Are performed on each product unit
Unit level
 Costine starts with finished product and works backward to assign cost to products and inventory
Backflush costing
Cost associated with ensuring that product quality is maintained from the beginning of production process until completion
Prevention cost
Cost associated with evaluating the quality of products and compliance with product standards
Appraisal cost
