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Unformatted text preview: CHAPTER 13 DISCUSSION QUESTIONS 13-1 Q13-1. Departmental overhead rates are preferred to a single rate because they improve the control of overhead by department heads responsible for controllable overhead, and they increase the accuracy of product and job costing when products or jobs move through various producing departments. Q13-2. Departmentalizing factory overhead is an extension of methods used in establishing a single rate because (a) an application base must be selected and estimated; (b) over-head estimates must be made; and (c) actual overhead must be accumulated and compared with applied overhead. These steps are required for each producing department, whereas with a single rate, only total factory data are necessary. Q13-3. The sum of departmental over- or underap-plied overhead would be different. Every direct labor hour would have the same amount of applied overhead when a plant-wide overhead rate is used, assuming that the application base is direct labor hours. However, the use of departmental rates results in different amounts of applied over-head, depending on the labor hours in each department and the individual departmental overhead rates. For example, a firm with an overall rate of $2 would have $20,000 of applied overhead for 10,000 hours; the same firm with departmental rates of $1 and $3 for its two producing departments could have more or less applied overhead, depending on the breakdown of labor hours receiving the $1 and $3 overhead charge. The total cost of goods sold and total inventory would also be different, because departmental rates could cause different unit costs. Therefore, inventory and cost of goods sold would be influenced by products sold or still on hand. This would not be the case if a blanket rate were used. Q13-4. A producing department is directly con-cerned with manufacturing products or doing work on various jobs. A service department renders service to various departments and is not directly associated with manufacturing operations.The nature of the work done by a department determines whether it is a service or producing depart-ment. Examples of producing departments are cutting, finishing, machining, mixing, and refining. Examples of service departments are maintenance, medical, powerhouse, purchasing, receiving, and cost accounting. Q13-5. The kinds of departments established to control and charge costs depend on (a) sim-ilarity of a company’s operations, processes, and machinery; (b) location of operations, processes, and machinery; (c) responsibili-ties for production and costs; (d) relationship of operations to flow of product; and (e) number of departments or work centers.The number of departments established depends on the emphasis placed on cost control and on the development of overhead rates....
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- Spring '11