Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed

a Simplicity – one adjustment vis-à-vis five adjustments. b

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a
Simplicity – one adjustment vis-à-vis five adjustments.
b
The effect maybe immaterial. If the focus is only on income statement effects and Starkuchen holds minimal inventory (WIP or FG), the effect of using five adjustments maybe minimal. The argument against is a reduction in the accuracy of actual product cost numbers where there are major differences across activity areas in the magnitude and sign of the under- or over-allocation of overhead. The advantage of making five cost pool adjustments is the greater accuracy of the cost numbers (in both the activity areas and the resultant product costs. The disadvantage is the extra paperwork of making the adjustments.

Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
3
The 2011 actual unit indirect manufacturing costs for raisin cake and layered carrot cake using the under- or overallocated amounts from requirement 1 are

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