Activity-Base Costing: Day 1
Review: What are the two main purposes of product costing systems?
The primary purpose of job-order costing, operation costing, and process costing systems to provide
financial reporting. Using these same systems for decision-making can cause some problems.
One example is when a company attempts to recover costs with smaller units by raising prices. The
market will not likely respond favorably to the price increase, causing a reduction in profits, rather than
an increase in profits. This could start a cycle, which at the extreme may lead to going out of business.
This phenomenon is referred to as the
The company uses a plantwide overhead rate to apply manufacturing overhead costs to jobs.
Compute the overhead rate for the current year.
Determine the amount of overhead costs that would have been applied to the Hasting job.