Which of the following is NOT a limitation of a plant-wide overhead rate?
A)Predetermined rates using budgeted overhead are usually the best estimate of the amount of overhead.
B)Overhead usage is not strictly linked to the units produced because some products are more complex and diverse than others.
C)Product diversity may consume overhead activities under differing consumption ratios.
D)Overhead costs tend to be underallocated to highly complex products.

Question

Quizplus · Accepted Answer

A plant-wide overhead rate applies the same overhead rate to all products, regardless of the complexity or diversity of the products. This method assumes that overhead costs are directly proportional to a single cost driver (e.g., labor hours or machine hours) across all products, which is not always accurate. Therefore, the statement that predetermined rates using budgeted overhead are usually the best estimate of the amount of overhead does not reflect a limitation of this method. In contrast, B, C, and D highlight the limitations related to product diversity and the allocation of overhead costs, which are inherent issues with using a plant-wide overhead rate.

Which of the Following Is NOT a Limitation of a Plant-Wide