{"id":813,"date":"2021-03-17T20:57:17","date_gmt":"2021-03-17T20:57:17","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&p=813"},"modified":"2021-07-29T17:47:44","modified_gmt":"2021-07-29T17:47:44","slug":"why-it-matters-allocating-manufacturing-overhead","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/chapter\/why-it-matters-allocating-manufacturing-overhead\/","title":{"raw":"Why It Matters: Allocating Manufacturing Overhead","rendered":"Why It Matters: Allocating Manufacturing Overhead"},"content":{"raw":"\"PastaCompanies must accurately determine the costs of their products and services to make sound management decisions. For instance, if a particular item costs $540 to produce, but the market price is only $515, the company will lose money and might be better off discontinuing that product.\r\n\r\nLet\u2019s take an example from a general situation: a Sales Manager (SM), a Production Manager (PM), and a Cost Accountant (CA) walk into a nice bar. You are the cost accountant. The three of you have dinner discussing Yore Company\u2019s current product lines and how to make them profitable. You order a Caesar salad. The sales manager orders steak, and the production manager has the pasta special. You also split a plate of escargot, but the SM and the PM don\u2019t really like them, so you eat four of the six snails. They each have only one. The SM has two glasses of wine during dinner, and the PM has one. You stick to water. After dinner, the three of you split a tiramisu three ways. The service was excellent so you all agree to leave a 20% tip. When the bill comes, the sales manager suggests you split it three ways evenly:\r\n
\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Description<\/th>\r\nAmount<\/th>\r\n<\/tr>\r\n<\/thead>\r\n
Steak Dinner<\/td>\r\nSingle Line<\/span>$ 50.00<\/td>\r\n<\/tr>\r\n
Pasta Special<\/td>\r\n$ 30.00<\/td>\r\n<\/tr>\r\n
Caesar Salad<\/td>\r\n$ 16.00<\/td>\r\n<\/tr>\r\n
Appetizer<\/td>\r\n$ 24.00<\/td>\r\n<\/tr>\r\n
Wine - glass<\/td>\r\n$ 30.00<\/td>\r\n<\/tr>\r\n
Wine - glass<\/td>\r\n$ 30.00<\/td>\r\n<\/tr>\r\n
Wine - glass<\/td>\r\n$ 30.00<\/td>\r\n<\/tr>\r\n
Desert<\/td>\r\n$ 15.00<\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Subtotal<\/td>\r\nSingle Line<\/span>$225.00<\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Tip<\/td>\r\n$ 45.00<\/td>\r\n<\/tr>\r\n
Total<\/td>\r\nSingle Line<\/span>$270.00Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n \r\n\r\n$270 split three ways is $90 each.\r\n\r\nHowever, the production manager notices that the steak dinner was quite a bit more than the pasta, and so suggests that the meals be separated and the rest of the bill split evenly, and pencils it out on a napkin:\r\n
\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/th>\r\n<\/th>\r\nSM<\/th>\r\nPM<\/th>\r\nCA<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n
Dinner<\/td>\r\nSingle Line<\/span>$\u00a0 96.00<\/td>\r\nSingle Line<\/span>$\u00a0 50.00<\/td>\r\nSingle Line<\/span>$ \u00a0 30.00<\/td>\r\nSingle Line<\/span>$ \u00a0 16.00<\/td>\r\n<\/tr>\r\n
Everything else<\/td>\r\n$ 174.00<\/td>\r\n$\u00a0 58.00<\/td>\r\n$ \u00a0 58.00<\/td>\r\n$ \u00a0 58.00<\/td>\r\n<\/tr>\r\n
Total<\/td>\r\nSingle Line<\/span>$ 270.00Double line<\/span><\/td>\r\nSingle Line<\/span>$ 108.00Double line<\/span><\/td>\r\nSingle Line<\/span>$ \u00a0 88.00Double line<\/span><\/td>\r\nSingle Line<\/span>$ \u00a0 74.00Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n \r\n\r\nAs a cost accountant, you suggest the items be allocated as directly as possible and that anything shared, like dessert and the appetizer, be allocated according to a rational basis. You grab a pen and a napkin and sketch out the following proposal, splitting the escargot appetizer by pieces (1:1:4) and the dessert in equal thirds.\r\n
\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/th>\r\n<\/th>\r\nSM<\/th>\r\nPM<\/th>\r\nCA<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n
Steak Dinner<\/td>\r\nSingle Line<\/span>$ \u00a0 50.00<\/td>\r\nSingle Line<\/span>$ \u00a0 50.00<\/td>\r\nSingle Line<\/span><\/td>\r\nSingle Line<\/span><\/td>\r\n<\/tr>\r\n
Pasta Special<\/td>\r\n$ \u00a0 30.00<\/td>\r\n<\/td>\r\n$ \u00a0 30.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Caesar Salad<\/td>\r\n$ \u00a0 16.00<\/td>\r\n<\/td>\r\n<\/td>\r\n$ \u00a0 16.00<\/td>\r\n<\/tr>\r\n
Appetizer<\/td>\r\n$ \u00a0 24.00<\/td>\r\n$\u00a0 \u00a0 4.00<\/td>\r\n$\u00a0 \u00a0 4.00<\/td>\r\n$ \u00a0 16.00<\/td>\r\n<\/tr>\r\n
Wine - glass<\/td>\r\n$ \u00a0 30.00<\/td>\r\n$ \u00a0 30.00<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Wine - glass<\/td>\r\n$ \u00a0 30.00<\/td>\r\n$ \u00a0 30.00<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Wine - glass<\/td>\r\n$ \u00a0 30.00<\/td>\r\n<\/td>\r\n$ \u00a0 30.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Dessert<\/td>\r\n$ \u00a0 15.00<\/td>\r\n$\u00a0 \u00a0 5.00<\/td>\r\n$\u00a0 \u00a0 5.00<\/td>\r\n$\u00a0 \u00a0 5.00<\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Subtotal<\/td>\r\nSingle Line<\/span>$\u00a0 225.00<\/td>\r\nSingle Line<\/span>$\u00a0 119.00<\/td>\r\nSingle Line<\/span>$ \u00a0 69.00<\/td>\r\nSingle Line<\/span>$ \u00a0 37.00<\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Tip<\/td>\r\n$ \u00a0 45.00<\/td>\r\n$ \u00a0 23.80<\/td>\r\n$ \u00a0 13.80<\/td>\r\n$\u00a0 \u00a0 7.40<\/td>\r\n<\/tr>\r\n
Total<\/td>\r\nSingle Line<\/span>$\u00a0 270.00Double line<\/span><\/td>\r\nSingle Line<\/span>$\u00a0 142.80Double line<\/span><\/td>\r\nSingle Line<\/span>$ \u00a0 82.80Double line<\/span><\/td>\r\nSingle Line<\/span>$ \u00a0 44.40Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n \r\n\r\nNotice that each iteration gave a clearer and more accurate picture of the actual cost of each meal, with specifically identified costs allocated directly to each person and shared costs (these would be like manufacturing overhead) allocated on a rational basis.\r\n\r\nA manufacturer\u2019s product costs consist of direct materials, direct labor, and indirect costs such as factory overhead. In addition, some costs are variable (such as direct materials and direct labor) and some are fixed (most of the factory overhead costs). The materials and labor are direct costs that can be identified and traced to the product. Factory overhead, however, is indirect and must be allocated to the product to determine the actual cost of the item.\r\n\r\nLet\u2019s take a hypothetical situation. Yore Company makes two kinds of purses, basic and deluxe, and for October, it reported the following results from operations:\r\n
\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Yore Company\r\nIncome Statement (full absorption)\r\nFor the month ending October 31, 20XX<\/caption>\r\n
Description<\/th>\r\nTotal<\/th>\r\n<\/tr>\r\n<\/thead>\r\n
Sales<\/td>\r\n$ 1,072,400.00<\/td>\r\n<\/tr>\r\n
Cost of Goods Manufactured and Sold<\/td>\r\n1,001,600.00<\/td>\r\n<\/tr>\r\n
Gross Profit<\/td>\r\nSingle Line<\/span>70,800.00<\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total Selling, General, and Administrative<\/td>\r\n54,400.00<\/td>\r\n<\/tr>\r\n
Net income from operations<\/td>\r\nSingle Line<\/span>$\u00a0 \u00a0 16,400.00Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n \r\n\r\nSales are broken down as follows:\r\n
\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/th>\r\nUnits<\/th>\r\n$\/unit<\/th>\r\nTotal<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n
Sales<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
\u00a0 Basic<\/td>\r\n3,200<\/td>\r\n$\u00a0 \u00a0 \u00a0 \u00a0 245.00<\/td>\r\n$ \u00a0 784,000.00<\/td>\r\n<\/tr>\r\n
\u00a0 Deluxe<\/td>\r\n560<\/td>\r\n$\u00a0 \u00a0 \u00a0 \u00a0 515.00<\/td>\r\n288,400.00<\/td>\r\n<\/tr>\r\n
\u00a0 \u00a0\u00a0\u00a0Total sales<\/td>\r\n3,760<\/td>\r\n<\/td>\r\n$ 1,072,400.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n \r\n\r\nThe new sales manager is paid a bonus on the gross profit above $80,000, so did not receive a bonus in October, and is arguing that since the company sold 3,760 purses at a total manufacturing cost of $1,001,600, the cost of each purse must be approximately $266.38, and since the deluxe purse sells for $515.00, the company should focus on that product and discontinue the basic purse completely since it has a negative gross profit.\r\n
\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
<\/th>\r\nBasic<\/th>\r\nDeluxe<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Sales Price<\/td>\r\n$ \u00a0 \u00a0 \u00a0 245.00<\/td>\r\n$\u00a0 \u00a0 \u00a0 \u00a0515.00<\/td>\r\n<\/tr>\r\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Average cost<\/td>\r\n266.38<\/td>\r\n266.38<\/td>\r\n<\/tr>\r\n
Gross profit per unit<\/td>\r\nSingle Line<\/span>$\u00a0 \u00a0 \u00a0 (21.38)Double line<\/span<\/span><\/td>\r\nSingle Line<\/span>$ \u00a0 \u00a0 \u00a0 248.62Double line<\/span<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n \r\n\r\nThe production manager, however, notes that the deluxe model takes more than twice as long to manufacture and is much more labor-intensive and is arguing that if the deluxe model was discontinued, the company could focus on the basic model and would ultimately make more money.\r\n\r\nBoth the production manager and the sales manager would like the managerial accountants to come up with an exact cost for each purse which includes both fixed and variable costs so they can better analyze their approach to production and sales.\r\n\r\nIn this module, you\u2019ll learn how to allocate indirect costs using various methods, from simple to complex, and how managers use that cost data to make production and sales decisions.\r\n\r\nHere are the three different methods of allocating factory overhead that you will study:\r\n
    \r\n \t
  1. Single factory-wide rate \u2013 the same rate based on the same activity base for all departments.<\/li>\r\n \t
  2. Departmental rates \u2013 different rates for different departments, but a single rate within a department.<\/li>\r\n \t
  3. Activity-based costing \u2013 different rates for different processes and activities, regardless of department.<\/li>\r\n<\/ol>","rendered":"

    \"PastaCompanies must accurately determine the costs of their products and services to make sound management decisions. For instance, if a particular item costs $540 to produce, but the market price is only $515, the company will lose money and might be better off discontinuing that product.<\/p>\n

    Let\u2019s take an example from a general situation: a Sales Manager (SM), a Production Manager (PM), and a Cost Accountant (CA) walk into a nice bar. You are the cost accountant. The three of you have dinner discussing Yore Company\u2019s current product lines and how to make them profitable. You order a Caesar salad. The sales manager orders steak, and the production manager has the pasta special. You also split a plate of escargot, but the SM and the PM don\u2019t really like them, so you eat four of the six snails. They each have only one. The SM has two glasses of wine during dinner, and the PM has one. You stick to water. After dinner, the three of you split a tiramisu three ways. The service was excellent so you all agree to leave a 20% tip. When the bill comes, the sales manager suggests you split it three ways evenly:<\/p>\n

    \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
    Description<\/th>\nAmount<\/th>\n<\/tr>\n<\/thead>\n
    Steak Dinner<\/td>\nSingle Line<\/span>$ 50.00<\/td>\n<\/tr>\n
    Pasta Special<\/td>\n$ 30.00<\/td>\n<\/tr>\n
    Caesar Salad<\/td>\n$ 16.00<\/td>\n<\/tr>\n
    Appetizer<\/td>\n$ 24.00<\/td>\n<\/tr>\n
    Wine – glass<\/td>\n$ 30.00<\/td>\n<\/tr>\n
    Wine – glass<\/td>\n$ 30.00<\/td>\n<\/tr>\n
    Wine – glass<\/td>\n$ 30.00<\/td>\n<\/tr>\n
    Desert<\/td>\n$ 15.00<\/td>\n<\/tr>\n
    \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Subtotal<\/td>\nSingle Line<\/span>$225.00<\/td>\n<\/tr>\n
    \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Tip<\/td>\n$ 45.00<\/td>\n<\/tr>\n
    Total<\/td>\nSingle Line<\/span>$270.00Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

     <\/p>\n

    $270 split three ways is $90 each.<\/p>\n

    However, the production manager notices that the steak dinner was quite a bit more than the pasta, and so suggests that the meals be separated and the rest of the bill split evenly, and pencils it out on a napkin:<\/p>\n

    \n\n\n\n\n\n\n\n
    <\/th>\n<\/th>\nSM<\/th>\nPM<\/th>\nCA<\/th>\n<\/tr>\n<\/tbody>\n
    Dinner<\/td>\nSingle Line<\/span>$\u00a0 96.00<\/td>\nSingle Line<\/span>$\u00a0 50.00<\/td>\nSingle Line<\/span>$ \u00a0 30.00<\/td>\nSingle Line<\/span>$ \u00a0 16.00<\/td>\n<\/tr>\n
    Everything else<\/td>\n$ 174.00<\/td>\n$\u00a0 58.00<\/td>\n$ \u00a0 58.00<\/td>\n$ \u00a0 58.00<\/td>\n<\/tr>\n
    Total<\/td>\nSingle Line<\/span>$ 270.00Double line<\/span><\/td>\nSingle Line<\/span>$ 108.00Double line<\/span><\/td>\nSingle Line<\/span>$ \u00a0 88.00Double line<\/span><\/td>\nSingle Line<\/span>$ \u00a0 74.00Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

     <\/p>\n

    As a cost accountant, you suggest the items be allocated as directly as possible and that anything shared, like dessert and the appetizer, be allocated according to a rational basis. You grab a pen and a napkin and sketch out the following proposal, splitting the escargot appetizer by pieces (1:1:4) and the dessert in equal thirds.<\/p>\n

    \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
    <\/th>\n<\/th>\nSM<\/th>\nPM<\/th>\nCA<\/th>\n<\/tr>\n<\/tbody>\n
    Steak Dinner<\/td>\nSingle Line<\/span>$ \u00a0 50.00<\/td>\nSingle Line<\/span>$ \u00a0 50.00<\/td>\nSingle Line<\/span><\/td>\nSingle Line<\/span><\/td>\n<\/tr>\n
    Pasta Special<\/td>\n$ \u00a0 30.00<\/td>\n<\/td>\n$ \u00a0 30.00<\/td>\n<\/td>\n<\/tr>\n
    Caesar Salad<\/td>\n$ \u00a0 16.00<\/td>\n<\/td>\n<\/td>\n$ \u00a0 16.00<\/td>\n<\/tr>\n
    Appetizer<\/td>\n$ \u00a0 24.00<\/td>\n$\u00a0 \u00a0 4.00<\/td>\n$\u00a0 \u00a0 4.00<\/td>\n$ \u00a0 16.00<\/td>\n<\/tr>\n
    Wine – glass<\/td>\n$ \u00a0 30.00<\/td>\n$ \u00a0 30.00<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
    Wine – glass<\/td>\n$ \u00a0 30.00<\/td>\n$ \u00a0 30.00<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
    Wine – glass<\/td>\n$ \u00a0 30.00<\/td>\n<\/td>\n$ \u00a0 30.00<\/td>\n<\/td>\n<\/tr>\n
    Dessert<\/td>\n$ \u00a0 15.00<\/td>\n$\u00a0 \u00a0 5.00<\/td>\n$\u00a0 \u00a0 5.00<\/td>\n$\u00a0 \u00a0 5.00<\/td>\n<\/tr>\n
    \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Subtotal<\/td>\nSingle Line<\/span>$\u00a0 225.00<\/td>\nSingle Line<\/span>$\u00a0 119.00<\/td>\nSingle Line<\/span>$ \u00a0 69.00<\/td>\nSingle Line<\/span>$ \u00a0 37.00<\/td>\n<\/tr>\n
    \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Tip<\/td>\n$ \u00a0 45.00<\/td>\n$ \u00a0 23.80<\/td>\n$ \u00a0 13.80<\/td>\n$\u00a0 \u00a0 7.40<\/td>\n<\/tr>\n
    Total<\/td>\nSingle Line<\/span>$\u00a0 270.00Double line<\/span><\/td>\nSingle Line<\/span>$\u00a0 142.80Double line<\/span><\/td>\nSingle Line<\/span>$ \u00a0 82.80Double line<\/span><\/td>\nSingle Line<\/span>$ \u00a0 44.40Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

     <\/p>\n

    Notice that each iteration gave a clearer and more accurate picture of the actual cost of each meal, with specifically identified costs allocated directly to each person and shared costs (these would be like manufacturing overhead) allocated on a rational basis.<\/p>\n

    A manufacturer\u2019s product costs consist of direct materials, direct labor, and indirect costs such as factory overhead. In addition, some costs are variable (such as direct materials and direct labor) and some are fixed (most of the factory overhead costs). The materials and labor are direct costs that can be identified and traced to the product. Factory overhead, however, is indirect and must be allocated to the product to determine the actual cost of the item.<\/p>\n

    Let\u2019s take a hypothetical situation. Yore Company makes two kinds of purses, basic and deluxe, and for October, it reported the following results from operations:<\/p>\n

    \n\n\n\n\n\n\n\n\n\n
    Yore Company
    \nIncome Statement (full absorption)
    \nFor the month ending October 31, 20XX<\/caption>\n
    Description<\/th>\nTotal<\/th>\n<\/tr>\n<\/thead>\n
    Sales<\/td>\n$ 1,072,400.00<\/td>\n<\/tr>\n
    Cost of Goods Manufactured and Sold<\/td>\n1,001,600.00<\/td>\n<\/tr>\n
    Gross Profit<\/td>\nSingle Line<\/span>70,800.00<\/td>\n<\/tr>\n
    \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total Selling, General, and Administrative<\/td>\n54,400.00<\/td>\n<\/tr>\n
    Net income from operations<\/td>\nSingle Line<\/span>$\u00a0 \u00a0 16,400.00Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

     <\/p>\n

    Sales are broken down as follows:<\/p>\n

    \n\n\n\n\n\n\n\n\n
    <\/th>\nUnits<\/th>\n$\/unit<\/th>\nTotal<\/th>\n<\/tr>\n<\/tbody>\n
    Sales<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
    \u00a0 Basic<\/td>\n3,200<\/td>\n$\u00a0 \u00a0 \u00a0 \u00a0 245.00<\/td>\n$ \u00a0 784,000.00<\/td>\n<\/tr>\n
    \u00a0 Deluxe<\/td>\n560<\/td>\n$\u00a0 \u00a0 \u00a0 \u00a0 515.00<\/td>\n288,400.00<\/td>\n<\/tr>\n
    \u00a0 \u00a0\u00a0\u00a0Total sales<\/td>\n3,760<\/td>\n<\/td>\n$ 1,072,400.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

     <\/p>\n

    The new sales manager is paid a bonus on the gross profit above $80,000, so did not receive a bonus in October, and is arguing that since the company sold 3,760 purses at a total manufacturing cost of $1,001,600, the cost of each purse must be approximately $266.38, and since the deluxe purse sells for $515.00, the company should focus on that product and discontinue the basic purse completely since it has a negative gross profit.<\/p>\n

    \n\n\n\n\n\n\n\n
    <\/th>\nBasic<\/th>\nDeluxe<\/th>\n<\/tr>\n<\/tbody>\n
    \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Sales Price<\/td>\n$ \u00a0 \u00a0 \u00a0 245.00<\/td>\n$\u00a0 \u00a0 \u00a0 \u00a0515.00<\/td>\n<\/tr>\n
    \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Average cost<\/td>\n266.38<\/td>\n266.38<\/td>\n<\/tr>\n
    Gross profit per unit<\/td>\nSingle Line<\/span>$\u00a0 \u00a0 \u00a0 (21.38)Double line<\/span<\/span><\/td>\nSingle Line<\/span>$ \u00a0 \u00a0 \u00a0 248.62Double line<\/span<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

     <\/p>\n

    The production manager, however, notes that the deluxe model takes more than twice as long to manufacture and is much more labor-intensive and is arguing that if the deluxe model was discontinued, the company could focus on the basic model and would ultimately make more money.<\/p>\n

    Both the production manager and the sales manager would like the managerial accountants to come up with an exact cost for each purse which includes both fixed and variable costs so they can better analyze their approach to production and sales.<\/p>\n

    In this module, you\u2019ll learn how to allocate indirect costs using various methods, from simple to complex, and how managers use that cost data to make production and sales decisions.<\/p>\n

    Here are the three different methods of allocating factory overhead that you will study:<\/p>\n

      \n
    1. Single factory-wide rate \u2013 the same rate based on the same activity base for all departments.<\/li>\n
    2. Departmental rates \u2013 different rates for different departments, but a single rate within a department.<\/li>\n
    3. Activity-based costing \u2013 different rates for different processes and activities, regardless of department.<\/li>\n<\/ol>\n\n\t\t\t
      \n\t\t\t

      Candela Citations<\/h3>\n\t\t\t\t\t
      \n\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
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