The departmental overhead rate method allows each department to have its own overhead rate and its own allocation base.

Question

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The departmental overhead rate method is based on the idea that different departments have different activities that have varying impacts on overhead costs. Therefore, each department is allocated its own overhead rate based on its specific allocation base, such as direct labor hours or machine hours. This allows for a more accurate allocation of costs and a better understanding of the true cost of producing a product or providing a service.

The Departmental Overhead Rate Method Allows Each Department to Have