Question

There are four firms choosing a costing system.

Firm #1 produces one product, a customized executive desk.

Firm #2 produces two products, custom tennis shoe laces and custom hiking shoe laces. These products must be produced in different departments for administrative reasons, but they are manufactured in almost exactly the same way, in similarly sized bundles, and with the same types of overhead costs.

Firm #3 produces two products, custom accounting software and custom billing software. These two products incur significantly different types of overhead costs, and have to be produced in the same department for administrative reasons.

Firm #4 produces two products, custom meals and custom appetizers. These products have to be produced in different departments for administrative reasons. Packaging costs are substantial. The two products are packaged in different-sized bundles with 10 packs of custom meals per bundle and 1,000 packs of custom appetizers per bundle.

Each firm chooses one of the following costing systems:

(1) Job-order costing with a company-wide PDOH rate

(2) Job-order costing with departmental PDOH rates

(3) Activity-based costing

Which of the following are the MOST LIKELY  costing systems chosen by each firm?

Answers:	a. Firm 1: Job-order costing with a company-wide PDOH rate Firm 2: Job-order costing with departmental overhead rates Firm 3: Job-order costing with departmental overhead rates Firm 4: Job-order costing with departmental overhead rates
	b. Firm 1: Job-order costing with a company-wide PDOH rate Firm 2: Job-order costing with a company-wide PDOH rate Firm 3: Job-order costing with departmental overhead rates Firm 4: Job-order costing with departmental overhead rates
	c. Firm 1: Job-order costing with a company-wide PDOH rate Firm 2: Job-order costing with a company-wide PDOH rate Firm 3: Activity-based costing Firm 4: Activity-based costing
	d. Firm 1: Job-order costing with a company-wide PDOH rate Firm 2: Job-order costing with departmental overhead rates Firm 3: Activity-based costing Firm 4: Job-order costing with departmental overhead rates

Answer 1

Answer is c.

Firm 1: Job-order costing with a company-wide PDOH rate - For a single product, company wide PDOH Rate is Appropriate way to allocate overhead.

Firm 2: Job-order costing with a company-wide PDOH rate - For two similar kind or product, company wide PDOH Rate is Appropriate way to allocate overhead.

Firm 3: Activity-based costing - For different products produced in same department, Activity based costing will give the appropriate result.

Firm 4: Activity-based costing - For similar products with different characteristics, Activity based costing will give the appropriate results.

answered by: anonymous