Concept explainers
Concept introduction:
Traditional costing systems use predetermined
Predetermined Overhead allocation rate:
The Predetermined Overhead allocation rate is used to allocate the manufacturing overhead over the jobs. Predetermined Overhead allocation rate is calculated by dividing the Total Estimated overhead cost by the Total Estimated allocation base.
The formula to calculate the Predetermined Overhead allocation rate is as follows:
To indicate:
The potential negative consequences of traditional volume based costing system
Want to see the full answer?
Check out a sample textbook solutionChapter 4 Solutions
Managerial Accounting
- What advantage does the FIFO cost method have over the average cost method relative to providing information for cost control?arrow_forwardExplain why a costing system that uses a volume-based rate is likely to produce distorted productcostsarrow_forwardHow do the cost flows in backflush costing systems differ from those in traditional costing systems?arrow_forward
- Demonstrate why expressing fixed costs on a per unit of activity basis is misleading and may result in faulty decisions.arrow_forwardBriefly explain two factors that tend to result in product cost distortion under traditional, volume-based product costing systems.arrow_forwardWhy is the form of activity-based costing unacceptable for external financial reports?arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegePrinciples of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning