Which of the following statements is true with regard to the plantwide overhead rate method?

A) The rate is determined using volume-related measures.
B) It is logical to use this method when overhead costs are not closely tied to volume-related measures.
C) This method uses multiple overhead rates.
D) The rate is determined using measures that are not closely related to volume.
E) The method provides the most accurate means of allocating overhead costs.

Question

Malachi Butler · Accepted Answer

Final Answer : A, Explanation :  The plantwide overhead rate method uses a single overhead rate to allocate manufacturing overhead costs to products or jobs. This rate is typically determined using volume-related measures such as direct labor hours or machine hours. Therefore, statement A is true. Statement B is false because the plantwide overhead rate method is appropriate when overhead costs are closely tied to volume-related measures. Statement C is false because the plantwide overhead rate method uses a single overhead rate, not multiple rates. Statement D is false because the rate is determined using measures that are closely related to volume. Statement E is false because the plantwide overhead rate method may not provide the most accurate means of allocating overhead costs if there are significant differences in overhead cost drivers across products or jobs.

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