Asked by Amanda Sammons on Jun 10, 2024
Verified
Which of the following statements about using a plantwide overhead rate based on direct labor is correct?
A) Using a plantwide overhead rate based on direct labor-hours will ensure that direct labor costs are correctly traced to jobs.
B) Using a plantwide overhead rate based on direct labor costs will ensure that direct labor costs will be correctly traced to jobs.
C) It is often overly simplistic and incorrect to assume that direct labor-hours is a company's only manufacturing overhead cost driver.
D) The labor theory of value ensures that using a plantwide overhead rate based on direct labor will do a reasonably good job of assigning overhead costs to jobs.
Plantwide Overhead Rate
An overhead rate applied uniformly across an entire plant or company, calculated without regard to individual departments or products.
Manufacturing Overhead Cost Driver
A factor that causes the cost of manufacturing overhead to change, such as machine hours or labor hours.
- Comprehend the influence of applying various overhead rates and selecting suitable cost drivers on the precision of costing.
Verified Answer
SD
Sefia DedefoJun 12, 2024
Final Answer :
C
Explanation :
Using a plantwide overhead rate based on direct labor-hours may not be accurate as it assumes that all manufacturing overhead costs are directly related to the amount of direct labor-hours used. However, it is often not the case as there could be other cost drivers such as machine hours, setups, or material handling. Therefore, it is often overly simplistic and incorrect to assume that direct labor-hours is a company's only manufacturing overhead cost driver.
Learning Objectives
- Comprehend the influence of applying various overhead rates and selecting suitable cost drivers on the precision of costing.
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