Questions
22321 Cost Management Systems - Spring 2025 22321 Mid-semester exam: Lecture 1 [EXAM]
Single choice
A company with two departments—one labour-intensive and one machine-intensive—wants to improve overhead allocation accuracy. Which method is least likely to reduce cost distortion?
Options
A.Allocating support department overhead to production departments using the step-down method
B.Activity-based costing with multiple cost drivers for each overhead activity
C.Departmental rates using labour hours in the labour-intensive department and machine hours in the machine-intensive department
D.Plantwide rate based on direct labour hours
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Step-by-Step Analysis
To evaluate the options, we consider how well each method aligns overhead costs with the activities that actually drive those costs.
Option 1: Allocating support department overhead to production departments using the step-down method. This method sequentially allocates support overhead to production and other support departments, improving the granularity of allocation compared to a p......Login to view full explanationLog in for full answers
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