COST ACCOUNTING
JOB ORDER COSTING
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Using a plantwide overhead rate based on direct labor-hours will ensure that direct labor costs are correctly traced to jobs.
|
|
|
Using a plantwide overhead rate based on direct labor costs will ensure that direct labor costs will be correctly traced to jobs.
|
|
|
It is often overly simplistic and incorrect to assume that direct labor-hours is a company’s only manufacturing overhead cost driver.
|
|
|
The labor theory of value ensures that using a plantwide overhead rate based on direct labor will do a reasonably good job of assigning overhead costs to jobs.
|
Detailed explanation-1: -The correct option is 3rd i.e., It is often overly simplistic and incorrect to assume that direct labor-hours is a company’s only manufacturing overhead cost driver.
Detailed explanation-2: -Using a plantwide overhead rate based on direct labor-hours will ensure that direct labor costs are correctly traced to jobs. The labor theory of value ensures that using a plantwide overhead rate based on direct labor will do a reasonably good job of assigning all overhead costs to jobs.
Detailed explanation-3: -Advantages: More accurate overhead cost allocation. More effective overhead cost control. Focus on relevant factors.
Detailed explanation-4: -To arrive at the calculation, we need to divide the total overhead of $100, 000 by the total labor hours, which is 1500. We find the resultant number as 100, 000/1500 = $67 as overhead per labor hour. Therefore, product A will need 1000/500 or 2 hours per production unit.
Detailed explanation-5: -Some companies used multiple overhead rates because plantwide overhead rate is not always accurate which can lead to overapplication on one product and under application on the other. Multiple overhead rates are used by big companies that have a wide variety of cost pools and cost drivers.