Using a plantwide factory overhead rate distorts product costs when:
A) products require different ratios of allocation-base usage in each production department
B) significant differences exist in the factory overhead rates used across different production departments
C) both A and B are true
D) neither A nor B are true

Question

Quizplus · Accepted Answer

If products require different ratios of allocation-base usage in each production department (option A), using a plantwide factory overhead rate would allocate overhead costs inaccurately, leading to distorted product costs. Similarly, if significant differences exist in the factory overhead rates used across different production departments (option B), using a plantwide rate would lead to distorted product costs. Therefore, both A and B being true indicate that using a plantwide factory overhead rate would distort product costs.

Using a Plantwide Factory Overhead Rate Distorts Product Costs When