In the manufacturing sector, if the indirect cost amount is large enough, an incorrect allocation base...

In the manufacturing sector, if the indirect cost amount is large enough, an incorrect allocation base could have serious repercussions. What might be some examples of the effects of an incorrect allocation? How might that affect a company’s profitability and decision-making?

Expert Solution

Indirect costs are basically that costs which are not directly attributable to any product or department but are allocated proportionately to the respective based on their usage or some other standard methods.An incorrect allocation of indirect costs to any product or department will lead to higher cost price or service cost and therefore ultimately there will be lack of efficiency and so the company's profitability may suffer.

example-suppose there is an huge indirect cost of 10 lakhs in an entity.and there are just two departments one is production and the other one is marketing.Now if we allocate inappropriately all the cost to production department then ultimately product will be high and because of this, it will lose market competitiveness.Because customers will not buy high priced products and this will ultimately lead to loss to company's profitability and will also affect the company's decision-making adversely because company may have to take decision to abandon such high and ineffective costly products in the long run.

ekkarill92 answered 2 years ago

Activity Indirect Cost Allocation Base Allocation base by Ale Allocation base by nonAle Allocation base by...

Activity Indirect Cost Allocation Base Allocation base by Ale Allocation base by nonAle Allocation base by total Brewing $5000 Direct Labor 65hours 25 hours 90 hours Bottling $11000 Machine hours 80hours 30 hours 110 hours Inspecting $4000 Bottles 8000 bottles 2000 bottles 10000bottles Other pertinent information: 1.Cost for ingredients and bottles for Ale is $0.35 per bottle 2.Cost for ingredients and bottles for NonAle is $0.25 per bottle. 3. The labor costs to make a bottle of beer is the...

42. Monthly indirect production costs are $500,000. The cost-allocation base for indirect costs is machine hours....

42. Monthly indirect production costs are $500,000. The cost-allocation base for indirect costs is machine hours. The budgeted capacity for the month is 100,000 machine hours. Product X used 15,000 machine hours, Product Y used 20,000 machine hours and Product Z used 25,000 machine hours. How much of the indirect costs are allocated to Products Y and Z? Product Y Product Z A) $2,500 $7,500 B) $100,000 $125,000 C) $150,000 $175,000 D) none of the above 43. Depreciation Expense...

In 200 words or more, describe an example of indirect cost allocation in the manufacturing industry....

In 200 words or more, describe an example of indirect cost allocation in the manufacturing industry. Provide at least two examples of chosen topic using specific information.

Data 4 Allocation base Machine-hours 5 Estimated manufacturing overhead cost $448,000 6 Estimated total amount of...

Data 4 Allocation base Machine-hours 5 Estimated manufacturing overhead cost $448,000 6 Estimated total amount of the allocation base 70,000 machine-hours 7 Actual manufacturing overhead cost $436,600 8 Actual total amount of the allocation base 77,000 Machine hours a) What is the predetermined overhead rate? (Round your answer to 2 decimal places.) (b) By how much is the manufacturing overhead underapplied or overapplied? Either print or make a copy of your worksheet in your workbook before proceeding. You will...

Is possible for financial officers to create an adequate allocation base budget for indirect costs?

Describe why the allocation of indirect costs is such a critical topic in cost accounting. Be...

Describe why the allocation of indirect costs is such a critical topic in cost accounting. Be specific and provide a comprehensive answer (do not describe the methods). Provide reasons for cost allocation.

an activity-cost pool a. a measure of the activity performed serves as the cost allocation base....

an activity-cost pool a. a measure of the activity performed serves as the cost allocation base. b. the costs have a cause-and-effect relationship with the cost-allocation base for that activity. c. the cost pools are homogeneous over time. d. costs in a cost pool can always be traced directly to products. e. each pool pertains to a narrow and focused set of costs. Answer the following question(s) using the information below. Peter’s Printers has contracts to complete weekly supplements required...

Amberjack Company is trying to decide on an allocation base to use to assign manufacturing overhead...

Amberjack Company is trying to decide on an allocation base to use to assign manufacturing overhead to jobs. The company has always used direct labor hours to assign manufacturing overhead to products, but it is trying to decide whether it should use a different allocation base such as direct labor dollars or machine hours. Actual and estimated data for manufacturing overhead, direct labor cost, direct labor hours, and machine hours for the most recent fiscal year are summarized here: Estimated...

Direct or allocation of indirect costs to cost pools Using volume based cost drivers. Use diagrams...

Direct or allocation of indirect costs to cost pools Using volume based cost drivers. Use diagrams and schedules wherever necessary and provide examples. The Royal Botanical Gardens has been established for more than 120 years and has the following mission statement: "The Royal Botanical Gardens belongs to the nation. Our mission is to increase knowledge and appreciation of plants, their importance and their conservation, by managing and displaying living and preserved collections and through botanical and horticultural research." Located towards...

Discuss how cost allocation or transfer pricing and activity-base cost applies to banking industry and financial...

Discuss how cost allocation or transfer pricing and activity-base cost applies to banking industry and financial institution. Once you have identified the subject of interest, your post should focus on an assessment of the situation. What do you believe are the key issues? If there are problems, what solutions do you see? If this is a post that illustrates a successful resolution of a challenge, how was this success achieved?

Question