# Week 7 - Accumulating and Assigning Costs to Products

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The flashcards below were created by user honestkyle on FreezingBlue Flashcards.

1. In question 4-24, regarding the manufacturing overhead cost per year (\$4 mil) and the machine hour choices including practical capacity (120,000) and projected near-term usage (80,000), what is likely to happen if demand decreases further and the company continues to recompute its cost-driver rate using the same approach?
Prices will increase due to its cost-plus pricing strategy which will further decrease demand and send them into a death spiral.
2. In question 4-24, how should the company choose its cost driver rate in order to avoid a death spiral?
• They should use the practical capacity so it will more evenly match the cost of resources provided
• The company can also calculate the unused capacity and determine other profitable areas to use these remaining resources.
3. In question 4-30, how is the cost-driver rate computed for the Machining Department?
• Budgeted overhead cost / Machine hours
• \$350,000 / 14,000 machine hours = \$25.00 /MH
4. In question 4-30, how is the cost-driver rate computed for the Finishing Department?
• Budgeted overhead / Direct labor cost
• \$280,000 / \$350,000 = \$0.80 / DL\$
5. In question 4-30, when computing the total cost charged to Job #101, how are the Applied overhead costs calculated?
• For the Machining Department, multiply the machine hours (cost driver) for the job by the cost-driver rate.
• 50 hours x \$25.00/MH = \$1,250
• For the Finishing Department, multiply the direct labor cost by the cost-driver rate.
• \$800 x \$0.80/DL\$ = \$640.
6. In question 4-31, how is the plantwide cost-driver rate computed?
• Plantwide overhead costs / plantwide direct labor hours
• \$60,000 / 4000 DLH= \$15.00/DLH
7. In question 4-31, what are the reasons for choosing only one cost-driver rate, or two cost-driver rates?
• Using only one rate is simpler - less costly to implement and audit.
• Two cost-driver rates is potentially more accurate.
8. In question 4-32, how are the Monthly Support Cost Rates calculated using actual machine hours and overhead costs?
• Monthly overhead costs / Monthly actual machine hours
• \$70,000 / 1,350 = \$51.85
• \$70,000 / 1,400 = \$50.00
9. In question 4-32, what can the company do instead of calculate monthly overhead costs per machine hour?
• They can calculate the support cost-driver rate based on annual data.
• (\$70,000 x 12 months) ÷ (1500 MH x 12 months) = \$46.67/MH
• If there are multiple cost drivers that contribute to the manufacturing overhead, they may want to use multiple cost-driver rates and/or non-volume-related cost drivers.

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 Author: honestkyle ID: 287924 Filename: Week 7 - Accumulating and Assigning Costs to Products Updated: 2014-11-03 03:13:32 Tags: ACC6902 Folders: ACC6902 Description: Accumulating and Assigning Costs to Products Show Answers:

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