Use of a plantwide factory overhead rate distorts product costs when there are differences in the factory overhead rates across different production departments and when products require different ratios of allocation-base usage in each production department.

Question

Quizplus · Accepted Answer

A plantwide factory overhead rate assumes all products consume overhead in the same proportion, which can lead to inaccurate cost allocation when different products use different amounts of overhead resources across various departments.

Use of a Plantwide Factory Overhead Rate Distorts Product Costs