Question

What other options for the activity base and the importance of the MOH allocation. Do multiple product lines impact the MOH allocation?

Answer 1

The various options for activity base are as follows:

Activity Cost Pools	Activity Cost Drivers
Purchasing Department	Number of purchase orders
Materials Handling	Number of Materials Requisitions
Set up	Number of Machine Setups required
Inspection	Number of Inspections
Receiving Department	Number of purchase orders

The importance Of the MOH allocation is as follows:

1. Fixing the prices for the products is one example of a decision that must be taken by the management of the organisation. Prices are often established based on the cost of products. It is not enough to simply focus and include direct materials and direct labor. Overhead must be considered as well.
2. Several different activities are performed in order to produce a product, such as purchasing raw materials, setting up production machinery, inspecting the final product, and repairing defective products. Each of these activities on performance consume resources and consuming resources is another way of stating that a cost is associated with each of these activities. If products are charged for the use of these activities, managers will have an incentive to be efficient in utilizing the activities.
3. U.S. GAAP mandates that all manufacturing costs—direct materials, direct labor, and overhead—be assigned to products for inventory costing purposes. This requires the allocation of overhead costs to products.
4. Some companies set their products' selling prices based on their costs. In the long run, the products' selling prices must be large enough to cover the entire manufacturing costs of the company.(including the indirect manufacturing costs) plus the company's selling, general and administrative expenses and a profit for the company's owne