Questions On Allocating Overhead Costs - 1701 Words

Question 1 Allocating overhead costs is one of the important tasks and is necessary to be done by management accountant. One key reason is that in term of pricing strategies, many firms decide their products’ selling price based on their cost. And the selling price has to cover all the costs and profit. According to Vivian Guo (2012), Cost-plus pricing is the simplest and oldest method of determining price and provide the basis for doing business. For calculating this price we need add together the direct labour cost, direct material cost, selling and administrative costs, and overhead costs for a product. Then we need to add to it a markup percentage (AccountingTools, 2016). The pricing formula is: Total production costs + Selling and administration costs + Markup Number of units expected to sell Therefore, there is no doubt that it is significant to allocate overhead cost accurately for every production. If the overhead is calculated incorrectly, the selling price of the product will change. The company will not cover the cost and make a loss. Some firms in service industries like repair shops and printing shops prefer to use the time and material pricing to decide the price of products. Under this approach, they need to pay attention to the time and material two parts and determine two pricing rates. The rate is decided by the interaction of demand and supply and by competitive industry environment (Seal, W. andShow MoreRelatedThe General Overhead And Construction Projects Essay1510 Words   |  7 PagesIn the past, the general overhead in construction projects was not important compared to project costs. However, with the new construction environment and its changes such as the high usage of lean, BIM, and LEED, everything has changed. Nowadays, most of the construction contractors are measuring their general overhead costs and trying to control it. To gain profits, they started to allocate their general overhead costs to different construction projects they are working on. In this paper, we investigateRead MoreWeek 5 Practice Text Exercises Acc 5611259 Words   |  6 PagesByrd ACC 561 June 21, 2011 Michael T. Bradford Practice Text Exercises Excel 12-59 Allocating Costs Using Direct and Step-Down Methods (p. 584) Goal: Create an Excel spreadsheet to allocate costs using the direct method and the stepdown method. Use the results to answer questions about your findings. Scenario: Antonio Cleaning has asked you to help them determine the best method for allocating costs from their service departments to their producing departments. Additional background informationRead MoreFabricator Inc Allocation Of Overheads1006 Words   |  5 PagesAllocation of Overheads Mark Graves 28 May 2015 William Whitley â€Æ' Engineer concern The engineer of company is concerned about the recovery of overheads. 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TheRead MoreDestin Brass Case Essay example1360 Words   |  6 Pagesand  by  comparing  activity  based  costing  with  the  cost  systems  they  already  using,   looking  for  a  way  in  which  they  can  be  more  competitive  on  the  market.  Ã‚          ­Cover  page    ­Table  of  Content   1.  Use  the  Overhead  Cost  Activity  Analysis  in  Exhibit  5  and  other  data  on  manufacturing   costs  to  estimate  product  costs  for  valves,  pumps,  and  flow  controllers   Q.  1   When  Activity  Based  Costing  (Weetman,  2010,  p.  85)  is  used  to  calculate  the  monthly  cost  per   unit,  two  types  of  costs  are  distinguished.  Firstly  the  direct  costs,  consisting  of  the  direct  Read MoreActivity Based Costing ( Abc )1124 Words   |  5 Pagesassigns a cost. The cost reflects the actual resource consumption by each activity that has been identified. 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These questions aroused from Guidry when he realized that the company wasn’t making the standard 35% gross profitRead MoreActivity Based Costing - Essay 21483 Words   |  6 PagesAssigning Overhead Costs – Overhead costs are not directly related to production volume, and therefore cannot be traced to units of product in the same way as direct materials and direct labor. Consequently, we must assign overhead costs using an allocation system. There are three methods of overhead allocation 1. The single plant wide overhead rate method (as discussed in Chapter 2) Single overhead rate = Total budgeted overhead for the plant / Total budgeted base With base being