Multiple Choice
Which of the following groups of costs is the most accurate example of variable costs in the context of calculating Cost of Goods Sold under both perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following companies would be best served by using a plantwide overhead rate to allocate manufacturing overhead costs?
A
A pharmaceutical company with several departments producing different types of drugs
B
A multinational electronics company with multiple product lines and diverse production processes
C
A custom automobile manufacturer with highly specialized and varied production activities
D
A small furniture manufacturer producing a single product line in one facility
Verified step by step guidance1
Understand the concept of a plantwide overhead rate: A plantwide overhead rate is a single rate used to allocate manufacturing overhead costs across all products or departments in a facility. It is most effective when the production processes are similar and the company produces a single product or product line.
Analyze the characteristics of each company: Consider whether the production processes are diverse or uniform, and whether the company produces multiple products or a single product line.
Evaluate the pharmaceutical company: This company has several departments producing different types of drugs, which likely involve diverse production processes. A plantwide overhead rate may not accurately allocate costs in this scenario.
Evaluate the multinational electronics company: This company has multiple product lines and diverse production processes, making it unsuitable for a plantwide overhead rate as it would not reflect the complexity of overhead allocation.
Evaluate the small furniture manufacturer: This company produces a single product line in one facility, which suggests uniform production processes. A plantwide overhead rate would be appropriate here as it simplifies overhead allocation and aligns with the company's operations.
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