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Cost Allocation Methods Quiz
30 Questions
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Cost Allocation Methods Quiz

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Questions and Answers

What is used as a cost-allocation base for applying overhead in machining at Enriquez Machine Parts Company?

  • Machine parts
  • Direct labor
  • Machine hours (correct)
  • Assembly

    • Which of the following best describes budgeted overhead application rates?

  • Estimated rates (correct)
  • Fixed costs only
  • Actual costs incurred
  • Variable costs only

    • How is total overhead applied to a particular product calculated at Enriquez Machine Parts Company?

  • Budgeted machine hours multiplied by actual labor costs
  • Actual direct labor cost multiplied by fixed overhead rate
  • Fixed overhead rate multiplied by total machine hours
  • Actual machine hours multiplied by budgeted rates (correct)

    • What would be the overhead applied to a product using 8 machine hours in machining?

    <p>$44</p> Signup and view all the answers

    What cost-allocation base is used for applying overhead in assembly at Enriquez Machine Parts Company?

    <p>Direct labor</p> Signup and view all the answers

    Which of the following statements about budgeted overhead application rates is true?

    <p>$77</p> Signup and view all the answers

    What is used to apply overhead based on actual events?

    <p>Budgeted rates</p> Signup and view all the answers

    In Enriquez Machine Parts Company, what is the single cost-allocation base in the machining department?

    <p>Machine hours</p> Signup and view all the answers

    How is total overhead applied to a product calculated?

    <p>Actual machine hours or labor cost multiplied by budgeted overhead rates</p> Signup and view all the answers

    If Enriquez had used 70,000 machine hours in Machining, how much overhead was applied to Machining?

    <p>$280,000</p> Signup and view all the answers

    In Enriquez's Assembly department, how much overhead was applied if $190,000 was incurred in direct labor cost?

    <p>$95,000</p> Signup and view all the answers

    What is the basis for selecting a cost-allocation method in Enriquez Machine Parts Company?

    <p>Historical data</p> Signup and view all the answers

    What are budgeted overhead application rates?

    <p>Estimated rates used to apply overhead</p> Signup and view all the answers

    In the context of overhead application, what does 'budgeted overhead application rate' represent?

    <p>Total budgeted factory overhead</p> Signup and view all the answers

    How is total overhead applied to a specific product calculated?

    <p>Actual machine hours or labor cost used by the product</p> Signup and view all the answers

    What is the purpose of selecting a single cost allocation base in each department for applying overhead?

    <p>To apply overhead consistently</p> Signup and view all the answers

    Why are budgeted overhead rates used in overhead application?

    <p>To apply overhead based on estimates</p> Signup and view all the answers

    How would you calculate the total overhead applied to a product that uses 5 machine hours and incurs a direct-labor cost of $40?

    <p>$120</p> Signup and view all the answers

    What are budgeted overhead rates used for in a company?

    <p>To apply overhead based on actual events</p> Signup and view all the answers

    In the context of Enriquez Machine Parts Company, how is overhead applied to a product?

    <p>By multiplying budgeted rates by actual machine hours or labor cost</p> Signup and view all the answers

    For a product using 8 machine hours in machining and incurring a direct labor cost of $60, how much overhead would be applied?

    <p>$36</p> Signup and view all the answers

    If Enriquez Machine Parts Company used 50,000 machine hours in machining, how much overhead would be applied to Machining?

    <p>$200,000</p> Signup and view all the answers

    What is the key factor used for applying overhead in the assembly department of Enriquez Machine Parts Company?

    <p>Direct labor cost</p> Signup and view all the answers

    Suppose Enriquez had incurred $150,000 in direct labor cost. How much overhead would be applied to Assembly?

    <p>$130,000</p> Signup and view all the answers

    What method does Enriquez Machine Parts Company use to allocate overhead in the machining department?

    <p>Machine hours</p> Signup and view all the answers

    In the given scenario, how is total overhead applied to a product calculated?

    <p>Budgeted overhead rates multiplied by actual machine hours or labor cost</p> Signup and view all the answers

    What is the total overhead applied to a product that uses 8 machine hours in machining and incurs direct-labor cost of $60 in assembly?

    <p>$272</p> Signup and view all the answers

    If Enriquez had used 50,000 machine hours in Machining at the end of the year, how much overhead was applied to Machining?

    <p>$180,000</p> Signup and view all the answers

    How much overhead was applied to Assembly if Enriquez incurred $150,000 in direct labor cost at the end of the year?

    <p>$120,000</p> Signup and view all the answers

    What is the basis for applying overhead in the assembly department at Enriquez Machine Parts Company?

    <p>Direct labor cost</p> Signup and view all the answers

    Study Notes

    Budgeted Overhead Application Rates

    • Overhead rates are budgeted, meaning they are estimates used to apply overhead based on actual events.
    • Budgeted overhead application rate = Total budgeted Factory overhead / Total budgeted Amount of cost driver.

    Illustration of Overhead Application

    • Enriquez Machine Parts Company uses a single cost-allocation method in each department for applying overhead.
    • In machining, the cost-allocation method is machine hours (MH).
    • In assembly, the cost-allocation method is direct-labor cost (LC).
    • Total overhead applied to a product = Budgeted overhead rates x Actual machine hours (MH) or labor cost (LC) used by that product.
    • Example: Apply $44 of overhead to a product that uses 6 MH in machining and incurs direct-labor cost of $40 in assembly.
      • Machining: 6 actual MH x $4 per MH = $24
      • Assembly: $40 of DL cost x 50% = $20
      • Total overhead = $24 + $20 = $44

    Application of Overhead to Departments

    • If Enriquez had used 70,000 machine hours in Machining, overhead applied to Machining = 70,000 MH x $4 per MH = $280,000.
    • If Enriquez had incurred $190,000 in direct labor cost, overhead applied to Assembly = $190,000 x 50% = $95,000.

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    Description

    Test your knowledge on cost allocation methods for overheads in manufacturing companies. Questions cover topics such as total budgeted rate, amount of cost driver, and selecting cost-allocation base in different departments.

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