Use of a plantwide factory overhead rate does not distort product costs only when products require different ratios of allocation-base usage in each production department.

Question

Quizplus · Accepted Answer

The statement is incorrect. Plantwide factory overhead rate can distort product costs if the products require different levels of allocation-base usage in each production department. For example, if one product requires more machine hours than another product in a specific department, using the same overhead rate for both products will result in the cost of the first product being over-allocated and the cost of the second product being under-allocated. This can lead to incorrect pricing and profitability analysis for each product.

Use of a Plantwide Factory Overhead Rate Does Not Distort