Question

Ch 3 - Question 23 - p. 96

3) A company with four production departments that had been using a plant-wide overhead rate based on direct labor hours changes to a departmental overhead rate. Product A’s total allocated overhead increases as a result. Why might this have happened?

Ch 4 - Question 9 - p. 149

9) Describe the three “layers” of inventory that are typically involved in a period’s production under the FIFO accounting method. In what special situation are there only two layers?

Answer 1

Que: A company with four production departments that had been using a plant-wide
overhead rate based on direct labor hours changes to a departmental overhead rate.
Product A’s total allocated overhead increases as a result. Why might this have happened?
Ans:
Product A's unit might be labour intensive unit, which consumes more direct labour hour
rather than a Machinery intensive unit.So, as we are allocating plant overhead based on direct
labour hours, as a result of this, Products A's total alocated overhead would have increased.

Que:Describe the three “layers” of inventory that are typically involved in a period’s
production under the FIFO accounting method.
Ans:
The three layers of inventory involved in a period production under FIFO:
(1) Beginning work in progress:
It refers to the inventory which has been started converting into finished good in the previous
period but not yet completed which is yet to finish in the current period.
(2) Units started and completed:
It refers to the inventory which is purchased as a raw material in the current period and
all the converting process got over and became finished good in the same period and some
part might got sold.
(3) Units in ending work in progress:
It refers to the inventory which is purchased as a raw material in the current period and
but not yet completed the converting process and process might get over in the next
period.
Que: In what special situation are there only two layers?
Ans:
If there is no beginning work in progress or no ending work in progress there will
be only 2 layers of inventory.