When using the plantwide overhead rate method, total budgeted overhead costs are combined into one overhead cost pool. The departmental overhead rate method traces costs to each department and then determines an allocation base for each department.

## What is the reason for pooling costs?

Question: What Is The Reason For Pooling Costs? To Shift Costs From Low-volume To High-volume Products. It Is A Budgeting Technique Designed To Accurately Track Fixed Costs. Determining A Pool Rate For All Costs Incurred By The Same Activity Reduces The Number Of Cost Assignments Required.

## What is a cost pool and how does it relate to allocating overhead to products?

A cost pool is a grouping of individual costs, typically by department or service center. Cost pools are commonly used for the allocation of factory overhead to units of production, as required by several accounting frameworks. They are also used in activity-based costing to allocate costs to activities.

## Why is direct labor a poor basis for allocating overhead?

Why is direct labor a poor base for allocating overhead in many companies? There is no longer a direct link between direct labor and overhead. Direct labor is often replaced by machines; and decrease in direct labor leads to an increase in overhead.

## What are the features of Activity-Based Costing?

Following are important features of ABC method: (c) It leads to more accurate cost information because of easy traceability of cost according to activities cost driver. (d) It helps in eliminating non-value added activities thereby reducing the per unit cost of product. Thus, it helps in cost control.

## What are the steps involved in activity based costing?

Step 1: Identify the products that are the chosen cost objects. Step 2: Identify the direct costs of the products Step 2: Identify the direct costs of the products. Step 3: Select the activities and cost-allocation bases to use for allocating indirect costs to the products for allocating indirect costs to the products.

## How do you solve Activity Based Costing problems?

The five steps are as follows:

1. Identify costly activities required to complete products.
2. Assign overhead costs to the activities identified in step 1.
3. Identify the cost driver for each activity.
4. Calculate a predetermined overhead rate for each activity.
5. Allocate overhead costs to products.

## How do you identify cost drivers in Activity-Based Costing?

Assign each cost pool activity cost drivers, such as hours or units. Calculate the cost driver rate by dividing the total overhead in each cost pool by the total cost drivers. Divide the total overhead of each cost pool by the total cost drivers to get the cost driver rate.

## What is the formula for assigning activity cost pools to products?

The formula for assigning activity cost pools to products is: Activity-based overhead rate X Expected use of cost drivers per product 13. The primary benefit of ABC is more accurate product costing.