Which of the following is a disadvantage of the departmental overhead rate?
Which of the following is a disadvantage of the departmental overhead rate method? It may fail to accurately assign many overhead costs that are not driven by production volumn.
Which of the following is a disadvantage to using a single plantwide factory overhead rate?
Which of the following is a disadvantage to using a single plantwide factory overhead rate? The rate assumes that factory overhead costs are consumed in the same way by all products.
What are the advantages of using a plantwide overhead rate?
More accurate overhead cost allocation. More effective overhead cost control. Focus on relevant factors. Better management of activities.
What is a plantwide overhead rate?
The plantwide overhead rate is a single overhead rate that a company uses to allocate all of its manufacturing overhead costs to products or cost objects. It is most commonly used in smaller entities with simple cost structures.
Why is departmental overhead rate better?
Departmental overhead rates offer the flexibility to use a different activity or cost driver for each department. Often, some departments will rely heavily on manual labor while others require more machinery. Direct labor hours can be important to certain departments but machine hours might work better for others.
Why departmental overhead rates might be used instead of a single plantwide overhead rate?
Using departmental overhead rates will better reflect the costs of manufacturing Product A and Product B compared to using a single, plant-wide overhead rate.
What is the advantage of using multiple overhead rates vs a single plantwide overhead rate?
Why are multiple overhead rates rather than a plantwide overhead rate used in some companies?
Some companies use multiple overhead rates rather than plantwide rates to more appropriately allocate overhead costs among products. Multiple overhead rates should be used, for example, in situations where one department is machine intensive and another department is labor intensive.
How do you use plantwide overhead rate?
Plantwide Overhead Rate Method Divide your total expenses for the plant by the total number of units you produce. This will give you a per-unit rate. Using the plantwide overhead rate formula, if expenses come to $10,000 for instance and you produce 2,500 units, $10,000 divided by 2,500 equals four.
What is the rationale for the use of departmental rates rather than plantwide rates?
What is the rationale for the use of departmental rates rather than plantwide rates? overapplied overhead is deducted from cost of goods sold. A department that is capital-intensive most likely would use a predetermined departmental overhead rate based on which activity bases?
Why might a company decide to use departmental overhead rates instead of a plantwide overhead rate?
Why is it better to use separate overhead rates *?
Within a large manufacturing business with departments ranging from sales to assembly to administration, separating overhead rates gives management a clearer picture of the price of production.
Why is it better to use separate overhead rates rather than plant wide rates?
This approach typically provides more accurate cost information than simply using one plantwide rate but still relies on the assumption that overhead costs are driven by direct labor hours, direct labor costs, or machine hours.
Why are departmental overhead rates sometimes not accurate in assigning overhead costs to products?
Departmental overhead rates may not correctly assign overhead costs due to: a. the use of direct labor hours in allocating overhead costs to products rather than machine time or quantity of materials used.
Is a single plantwide overhead rate acceptable?
Conversely, a single plantwide overhead rate is not acceptable if a company has a large amount of overhead to allocate, services provided by the various departments are highly differentiated, or it is apparent that a number of different allocation bases should be used.
When to use a plant-wide rate of production?
Using a plant-wide rate is logical when there is one root cause of the indirect production costs and the company manufactures similar products.
What is the overhead rate for product a?
Product A will need 1000/500 or 2 hours per unit of production. Therefore, the overhead rate for product A is $67*2 = $134/unit. Similarly, product B needs 500/1000 or 0.5 hours per unit production.
What is the overhead rate of a machine hour?
For example, a company with a simple manufacturing operation that produces similar products could have a plant-wide overhead rate of $40 per machine hour if it has budgeted $800,000 of total manufacturing overhead costs and it expects to produce 20,000 machine hours of good output.