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.

 
Explanation

Knowledge Check 01
 
Since the departmental overhead rate method allocates overhead costs based on measures closely related to production volume, it fails to accurately assign many overhead costs, like machine depreciation or utility costs, that are not driven by production volume.

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