The usefulness of overhead allocations based on a plantwide overhead rate depends on two crucial assumptions: (1)the overhead cost is correlated with the allocation base; and (2)all products use overhead cost in dissimilar proportions.

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The usefulness of overhead allocations based on a plantwide overhead rate actually depends on the overhead cost being correlated with the allocation base (true) and all products using overhead costs in similar proportions, not dissimilar.

The Usefulness of Overhead Allocations Based on a Plantwide Overhead