If a company multiplies its actual overhead rate by the actual activity level of its allocation base, it is using:
Added by Brian S.
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The actual overhead rate refers to the actual costs incurred for overhead divided by the actual activity level of the allocation base. The allocation base could be direct labor hours, machine hours, or any other measure used to allocate overhead costs. Show more…
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Acton Company has two products: A and B. The annual production and sales of Product A is 800 units and of Product B is 500 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labor hours per unit and Product B requires 0.2 direct labor hours per unit. The total estimated overhead for the next period is P92,023. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools - Activity 1, Activity 2, and General Factory - with estimated overhead costs and expected activity as follows: Activity Cost Pool Estimated Overhead Cost Expected Activity - Product A Expected Activity - Product B Total Activity 1 P14,487 500 600 1100 Activity 2 P64,800 2500 500 3000 General Factory P12,736 400 100 340 Total P92,023 (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor hours.)
Madhur L.
A corporation makes two products: Product A and Product B. Annual production and sales are 800 units of Product A and 400 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead. The estimated overhead for the next period is $114,440. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools - Activity 1, Activity 2, and General Factory - with estimated overhead costs and expected activity as follows: Activity Cost Pool | Estimated Overhead Costs | Expected Activity Product A | Expected Activity Product B | Total Expected Activity Activity 1 | $56,400 | 700 | 300 | 1000 Activity 2 | $36,040 | 180 | 420 | 600 General Factory | $22,000 | 320 | 200 | 520 Total | $114,440 (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.)
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Variable costs of service departments are allocated to user departments using actual cost rates instead of budgeted cost rates.
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