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Challenge Economic

In: Business and Management

Submitted By dindaa22
Words 6695
Pages 27
1. Unit costs provide essential information needed for inventory valuation and preparation of income statements. Knowing unit costs is also critical for many decisions such as bidding decisions and accept-or-reject special order decisions.

represent a significant proportion of total overhead costs.
8. Low-volume products may consume nonunit-level overhead activities in much greater proportions than indicated by a unit-level cost driver and vice versa for high-volume products. If so, then the low-volume products will receive too little overhead and the high-volume products too much.

2. Cost measurement is determining the dollar amounts associated with resources used in production. Cost assignment is associating the dollar amounts, once measured, with units produced.

9. If some products are undercosted and others are overcosted, a firm can make a number of competitively bad decisions. For example, the firm might select the wrong product mix or submit distorted bids.

3. An actual overhead rate is rarely used because of problems with accuracy and timeliness. Waiting until the end of the year to ensure accuracy is rejected because of the need to have timely information. Timeliness of information based on actual overhead costs runs into difficulty (accuracy problems) because overhead is incurred nonuniformly and because production also may be nonuniform.



An overhead consumption ratio measures the proportion of an overhead activity consumed by a product.


Departmental rates typically use unit-level cost drivers. If products consume nonunitlevel overhead activities in different proportions than those of unit-level measures, then it is possible for departmental rates to move even further away from the true consumption ratios, since the

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