Question

Jason's Outdoors manufactures two products: snow skis and water skis. Jason's managerial accountant suspects that product cost distortion through factory overhead allocation is occurring where snow skis are underpriced and water skis are overpriced. As a result, all of the following statements are true except

a.Jason's accountant should consider a single plantwide rate to correct the problem.
b.Snow skis likely consumed a larger proportion of factory overhead than was allocated.
c.Jason may incorrectly decide to expand production of snow skis.
d.Jason will likely lose sales of water skis.

Answer 1

Answer:

Jason's accountant should consider a single plantwide rate to correct the problem.

Explanation:

In this scenario where there are two products being produced, they will consume different amounts of resources during production. Allocation of resources uniformly by using single plantwide rate will cause cost distortion when allocating factory overhead, so this is the incorrect option.

Jason's accountant should rather allocate overhead cost to the products on the basis of how much resources were used for their production this will reduce cost distortion.