Question

1. Anderson Company produces a variety of products, some in labor-intensive departments and some in heavily automated departments. Using a company-wide overhead allocation rate based on direct labor will result in overcosting some products and undercosting others.

True or False

2. Total quality control cost is the sum of voluntary and failure costs.

True or False

3. Most companies allocate facility-level activity costs directly to products for decision-making purposes.

True or False

4. In a highly automated manufacturing company, labor costs vary considerably with the volume of production.

True or False

Answer 1

1. The aforesaid statement is true. Since the company produces products both in labour intensive and automated departments, a company wide overhead allocation rate is not preferable since it will result in ovecosting of some and under costing of other products. Such a rate is preferred if products are produced using similar cost and in same department.

2. The aforesaid statement is false . Total quality cost control is sum of failure , appraisal and preventive cost.

3. True . The aforesaid statement is correct. Companies allocate facility level activity cost directly to product for decision making purpose. These are product related and hence directly allocated to them.

4. False. In a highly automated manufacturing company ,labour cost is not the primary cost and hence it does not vary considerably with the volume of production.