Assume a firm uses job costing. Which of the following is NOT a good reason to use departmental overhead rates rather than a single plantwide rate?
A) Total overhead costs amount to about 5 per cent of total prime costs.
B) The various products made by the firm follow different sequences of manufacturing activities.
C) Overhead costs in some departments are a very large proportion of total department cost, but are a very small proportion in other departments.
D) The firm makes multiple products using common equipment and employees.

Question

Quizplus · Accepted Answer

If the total overhead costs are only 5% of total prime costs, then using departmental overhead rates may not provide significant benefits in terms of more accurate costing. It may not be worth the additional effort and complexity. The other options provide good reasons for using departmental overhead rates.

Assume a Firm Uses Job Costing