Question

Young Company is beginning operations and is considering three alternatives to allocate manufacturing overhead to individual units produced. Young can use a plantwide rate, departmental rates, or activity-based costing. Young will produce many types of products in its single plant, and not all products will be processed through all departments. In which one of the following independent situations would reported net income for the first year be the same regardless of which overhead allocation method had been selected?

a. All production costs approach those costs that were budgeted.
b. The sales mix does not vary from the mix that was budgeted.
c. All manufacturing overhead is a fixed cost.
d. All ending inventory balances are zero.

Answer 1

d. All ending inventory balances are zero.

Step-by-step explanation:

Manufacturing overhead is an indirect cost which occurs when the production is done. Examples are Depreciation, Repairs and Maintenance etc.

All ending inventory balances are zero is the correct option because there is no opening balance and any change in net income is recorded in the balance sheet so, there will be no closing balance.

All production costs approach those costs that were budgeted, The sales mix does not vary from the mix that was budgeted and All manufacturing overhead is a fixed cost are all incorrect.