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Tutorial 21. Lanen et al., (2017): Review Q. 6-6, p. 227.The predetermined overhead rate is the value at which overhead is applied to one unit of the cost allocation base. It is used in product costing to apply the overhead to the units produced.2. Lanen et al., (2017): Review Q 6-7, p. 227.It would be ideal, but unlikely, that an allocation base would reflect direct causality between the activity and the overhead cost.6. Lanen et al., (2017): Exercises 9-31, p. 354c.Note to students from Kala (course coordinator):The answer (paragraph below) is from the solution manual provided by the publisher.  It provides an overview of the answer but fails to customize it to thecasefacts.  Students must include content from the tutorial discussion as the tutorial discussion will be more substantive and customized to the casefactsThe plantwide allocation method allocates overhead at 200% of direct laborfor both types of equipment. While this is the simplest method, it usuallydistorts information. It assumes that overhead in both departments has thesame rate. When overhead costs are broken down into department costpools, we see that Department B is allocated a smaller share of the overhead.Each department should try to assess what causes its overhead, and use thatas its allocation base.Tutorial 31. Lanen et al., (2017): Review Q. 9-3, p. 353.False. Department allocation is a two-stage process, so the first-stageassignment of costs and the choice of cost drivers affects the allocation ofcosts to products. The total product costs are the same under eitherapproach, but the individual product costs differ. This can affect the decisionsmanagers make regarding individual products.2. Lanen et al., (2017): Review Q. 9-6, p. 353.1.Identify activities that consume resources.2.Identify the cost driver associated with each activity.3.Compute a cost rate per activity unit (e.g., rate per setup, rate per part,rate per machine-hour).4.Allocate costs to products by multiplying the activity rate times the volumeof activity consumed by the product.3. Lanen et al., (2017): Exercises 9-32, p. 355.d.Charlene was correct in her belief that she was being allocated some of Department SV’s overhead. Plantwide allocation does not correctly allocate the overhead by department; it simply uses one allocation rate for all products in all departments. Under plantwide allocation, 1,000 gallons 
of chocolate cost $1,950. Once the overhead was reallocated into department cost pools, the cost of chocolate fell to $1,824. Although it requires more time and skill to collect and process the information, department allocation generally yields less distorted product cost information.

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