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 similar proportions.

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The statement is true as these two assumptions are necessary for the plantwide overhead rate method to accurately allocate overhead costs to products. If these assumptions do not hold true, then this method may result in inaccurate product costs.

The Usefulness of Overhead Allocations Based on a Plantwide Overhead