Exam 7: A Closer Look at Overhead Costs

The Kelsey Manufacturing Company Ltd has two production departments (Assembly and Finishing) and two support departments (Janitorial and Personnel). The usage of the two support departments in 2012 is as follows: The budgeted costs in the support departments of 2012 were as follows: Using the step-down method, what is the amount of Personnel Department cost allocated to the Assembly Department with the Personnel Department cost allocated first?

The production section of a firm is serviced by personnel and computing as follows: Personnel costs are allocated on the number of employees and computing costs on service hours. Overhead rates are based on labour hours. If the reciprocal services method is used to allocate support department costs, the total support department costs allocated to the Assembly Department (rounded) would be:

The Lots More Store has a Janitorial Department and a Personnel Department that provide services to three Sales Departments. The Janitorial Department cost is allocated based on space and the Personnel Department cost is allocated based on employees. The following information is available. Using the step-down method, calculate the amount of Janitorial Department cost allocated to Sales Department #2, if the Personnel Department is allocated first.

There is an increased trend of businesses moving towards using an increased range of cost drivers to improve the correctness of their product costing systems.

Assume a firm uses job costing. Which of the following is NOT a good reason to use departmental overhead rates rather than a single plantwide rate?

Budgeted amounts of allocation bases, rather than actual amounts, are preferable allocation bases because:

When management elect to calculate the overhead rate using a relatively long period of time, the overhead rate is called a normalised overhead rate.

Classix Products reported $28 000 in net profit for the year using variable costing. The company had no units in beginning inventory, planned and actual production was 30 000 units, and sales were 25 000 units during the year. Variable manufacturing costs were $15 per unit and total budgeted fixed manufacturing overhead was $150 000. There was no underapplied or overapplied overhead reported during the year. Determine the net profit under absorption costing.

Consider the following statements about support department costs. i. In order to assign all manufacturing costs to products, support department costs must be allocated to production departments. ii. Support department costs are period costs rather than product costs because the support departments are not directly involved in production. iii. Support departments are not considered crucial to the production process. Which statement/s is/are correct?

Activity-based costing focuses on the:

Dual rate versus single rate Firm F has many support departments and the majority of their costs are fixed. Firm V also has many support departments and the majority of their costs are variable. Determine which situation would be better suited for dual rate cost allocation and explain why.

The reciprocal approach to allocating support department costs recognises that only large support departments provide services to other support departments.

When the step-down method is used to allocate support department costs, a common way to select the first support department in the sequence is to choose the support department which:

The process of allocating fixed and variable costs separately is called:

The Lots More Store has a Janitorial Department and a Personnel Department that provide services to three Sales Departments. The Janitorial Department cost is allocated based on space and the Personnel Department cost is allocated based on employees. The following information is available. Using the direct method, calculate the amount of Personnel Department cost allocated to Sales Department #3.

The most widely used methods of support department cost allocations are the:

Based on the following figures, the predetermined manufacturing overhead rate is $20 per machine hour.

Which of the following statement/s is/are true?

The size and scale of support departments is usually determined by the:

Theoretical capacity refers to: