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CHAPTER 4 ACTIVITY-BASED PRODUCT COSTING QUESTIONS FOR WRITING AND DISCUSSION 3. An actual overhead rate is rarely used be- cause of problems with accuracy and timeli- ness. Waiting until the end of the year to en- sure accuracy is rejected because of the need to have timely information. Timeliness of information based on actual overhead costs runs into difficulty (accuracy problems) because overhead is incurred nonuniformly and because production also may be nonuniform. 5. First stage: Overhead is assigned to produc- tion department pools using direct tracing, driver tracing, and allocation. Second stage: Individual departmental rates are used to assign overhead to products as they pass through the departments. 6. Departmental rates would be chosen over plantwide rates whenever some depart- ments are more overhead intensive than others and if certain products spend more time in some departments than they do in others. 8. Low-volume products may consume nonunit-level overhead activities in much greater proportions than indicated by a unit- level cost driver and vice versa for high- volume products. If so, then the low-volume products will receive too little overhead and the high-volume products too much. 9. If some products are undercosted and oth- ers are overcosted, a firm can make a num- ber of competitively bad decisions. For ex- ample, the firm might select the wrong product mix or submit distorted bids. 19. Unit-level activities are those that occur each time a product is produced. Batch-level activ- ities are those that are performed each time a batch of products is produced. Product- level or sustaining activities are those that are performed as needed to support the various products produced by a company. Facility-level activities are those that sustain a factory’s general manufacturing process 75 75
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EXERCISES 4–1 Actual costing: 1. Quarter 1
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