D196 Unit 7

Smartistry produces custom photo albums, calendars, and stationery for customers. Which overhead allocation system should the company use?

Smartistry produces custom photo albums, calendars, and stationery for customers. Which overhead allocation system should the company use?

Job order costing

In a job order costing system, some actual production costs are directly associated with a job or product or project. Which production cost is allocated rather than being directly associated with a job, product, or project?

Overhead

What is direct labor?

Wages of factory employees who work directly on the products manufactured

In an ABC system, what is a cost pool?

The collection of overhead costs associated with a specific overhead cost activity

Sara is frustrated with her company's costing system. She suspects that too much overhead cost is being allocated to generic, simple products, and too little overhead cost is being allocated to custom-designed, complex products. The existing overhead allocation system is very traditional, with overhead being allocated strictly based on the number of direct labor hours.
Which type of costing system should Sara's company be using instead of its current system?

Activity-based costing

There are three general types of overhead cost activities in an ABC system. What are those three general types of activities?

Unit-level, batch-level, and product-line

How is an activity rate computed in an ABC system?

Cost pool divided by number of cost driver events

For some production processes, job order costing is the correct production costing system to use. With other production processes, process costing is more appropriate. For which process is process costing more appropriate?

Producing identical cans of paint

For which company below is job order costing the appropriate costing methodology?

A manufacturer of custom-designed furniture

A manufacturing company that produces custom snowmobiles must determine a systematic and rational way to allocate overhead costs. How should the company allocate overhead costs?

Allocate costs with a predetermined overhead rate based on budgeted overhead costs.