Learning Objective 04-P2: Allocate overhead costs using the departmental overhead rate method. When using multiple departmental rates, overhead costs must first be traced to each department

 Learning Objective 04-P2: Allocate overhead costs using the departmental overhead rate method.

When using multiple departmental rates, overhead costs must first be traced to each department and then divided by the measure of output for that department to yield the departmental overhead rate. Overhead is applied to products using this rate as products pass through each department.

Knowledge Check 01
 
If overhead cost does not bear a relation to the allocation base, allocating overhead cost using a single plantwide overhead rate can: 

 
Explanation

Knowledge Check 01
 
Using the plantwide overhead rate method when overhead cost bears little relation to the allocation base can distort product cost and lead to poor managerial decisions.

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