The S Company produces and sells desktop computers and laptop computers. You prepare the income statement....
The S Company produces and sells desktop computers and laptop computers. You prepare the income statement. This year, you prepared 2 income statements.
The first income statement allocates overhead using a single plantwide overhead rate.
The second income statement allocates overhead using activity-based costing.
As you compare the 2 income statements, which of the following items may be different?
Question 6 options:
|
Direct labor |
|
|
Direct materials |
|
|
Sales revenue |
|
|
Gross profit on desktops (and) gross profit on laptops |
Homework Answers
Under single plantwide overhead rate method, a single overhead rate is used for allocation of overheads to each product whereas under activity based costing method, different activity base is used for allocation of activity costs to each product. The use of method for allocation of overhead will not affect the values of sales revenue and variable costs (i.e. Direct materials cost, direct labor cost, variable overheads). Therefore when we compare 2 income statements, one based on single plantwide overhead rate and the other based on activity based costing, only fixed overhead and gross profit can differ.
Therefore from the given items only gross profit on desktops (and) gross profit on laptops may differ. Hence the correct option is d) Gross profit on desktops (and) gross profit on laptops.
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