Question

2-5 Explain the four-step process used to compute a predetermined overhead rate. 2-6 What is the purpose of the job cost sheet in a job-order costing system? 2-7 Explain why some production costs must be assigned to products through an allocation process. 2-8 Why do companies use predetermined overhead rates rather than actual manufacturing overhead costs to apply overhead to jobs? 2-9 What factors should be considered in selecting an allocation base to be used in computing a predetermined overhead rate? 2-10 If a company fully allocates all of its overhead costs to jobs, does this guarantee that a profit will be earned for the period? 2-11 Would you expect the amount of applied overhead for a period to equal the actual over- head costs of the period? Why or why not? 2-12 What is underapplied overhead? Overapplied overhead? 2-13 What is a plantwide overhead rate? Why are multiple overhead rates, rather than a plant- wide overhead rate, used in some companies?

Please answer ALL OF these questions or dont even attenpt it, thanks.

Answer 1

2-5 The four step process used to computer a predetermined overhead rate are:

(1) Estimate the total amount of the allocation base required for next year and estimate level of production

(2) Estimate variable manufacturing overhead cost per unit and fixed manufacturing overhead cost.

(3) Calculate estimated total manufacturing overhead cost.

Total manufacturing cost =Direct material + direct labour + manufacturing overhead

(4) Calculate predetermined overhead rate:

=estimate manufacturing overhead ÷ estimated unit to be allocated

2-6 The job cost sheet is mostly used for record allcost which are related to particular job. These cost includes direct material, direct labour cost and manufacturing cost related to particular job afer which job cost sheet are prepared.

2-7 There are different method of allocation of production cost amount different products that are:

a) Activity-based allocation

b) traditional method

In the given question if traditional method are used then production cost must be assigned to product through allocation process by using machine hour to allocated the cost.

2-8 Many company or organization use predetermined overhead rate/ estimate rate intead of actual overhead because company or organization generally prepare the cost sheet or job cost sheet in the beginning of the year or in the beginning of the production. However there are following other reason are:

(1) By using predetermined rate company can assign overhead cost to production when the assign direct material and labour cost.

(2) Overhead cost doesn't remain consent during the year.

2-9 The factors should be considered in selecting an allocation base to be used in determine predetermined overhead cost is on the bases of cost drive if cost drive is wrong then the allocation will also be wrong. Cost drive help in allocation of manufacturing overhead.

2-10 No, even if a company fully allocate all its overhead cost to job it does not guarantee above profit because estimate cost does not remains same as actual cost during the production process. It may be happened due to following reason such as uncertainty losses, increase in price of raw materials etc

2-12 Underrapplied overhead when expenses incurred are more than the budgeted by the company which means company has incurred cost over his budget.

Overrapplied overhead mean when expenses incurred are less then company budget which mean company has incurred less overhead cost.

2-13 When company or organization producted single line product then company uses plantwide overhead rate that is single overhead rate that a used to allocate all its manufacturing overhead costs.