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.
B) the high correlation between direct labor-hours and the incurrence of overhead costs.
C) overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.
D) difficulties associated with identifying cost pools for the first stage of the allocation process.

Question

Quizplus · Accepted Answer

Departmental overhead rates that allocate overhead costs based only on volume or direct labor-hours may lead to incorrect allocations when products differ in the number of units produced, lot size, or complexity of production. Thus, such rates may not reflect the actual overhead costs incurred by individual products or product lines. Therefore, it is important to use appropriate cost drivers for the allocation of overhead costs to products.

Departmental Overhead Rates May Not Correctly Assign Overhead Costs Due