Departmental overhead rates may not correctly assign overhead costs due to:

Question

Quizplus · Accepted Answer

Departmental overhead rates often allocate overhead costs based only on volume, such as direct labor hours, which may not accurately reflect the use of resources required by different products. This can result in over or undercosting of certain products. Factors such as lot size or complexity of production should also be considered when allocating overhead costs. Therefore, option C is the correct answer. Option A is incorrect because it contradicts the assertion made in the statement. Option B is incorrect as it identifies the high correlation between direct labor hours and overhead costs which may be true but does not explain why departmental overhead rates may not correctly assign overhead costs. Option D is incorrect as it does not provide an explanation of the potential issues associated with departmental overhead rates.

Departmental Overhead Rates May Not Correctly Assign Overhead Costs Due