1) With increased competition, managers need more accurate estimates of product costs in order to set prices and to identify the most profitable products.
2) The plant-wide overhead cost allocation rate is computed by dividing the estimated total manufacturing overhead costs by the estimated total quantity of the cost allocation base.
3) To determine the amount of overhead allocated, the overhead rate is divided by the cost driver.
4) Using departmental overhead rates is generally more accurate than using a single plant-wide overhead rate.
5) Cost distortion occurs when the some products are overcosted while other products are undercosted by the cost allocation system.
6) As a result of cost distortion, either all products will be overcosted, or all products will be undercosted.
7) Companies often refine their cost allocation systems to minimize the amount of cost distortion caused by the simpler cost allocation systems.
8) Companies that use departmental overhead rates trace direct materials and direct labor to cost objects just as in a traditional costing systems.
9) Refined costing systems can only be used by manufacturers to allocate manufacturing overhead.
10) Refined costing systems can be used to allocate ANY indirect costs to ANY cost objects.