3. What are some of the drawbacks of applying support department cost using a single plantwide...
3. What are some of the drawbacks of applying support department cost using a single plantwide rate?
Some of the drawbacks of applying support department cost using a single plant wide rate would be that this could lead to inaccuracies since the direct method while method is the easiest it is not the most reliable. Another is that the reciprocal method is very tedious as a result this may lead to inaccurate product costs for the single plantwide rate.
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Homework Answers
The given question relates to application of support department cost and not allocation of support department cost to operating department. Direct method and Reciprocal method are method of allocating support department costs to operating departments.
The disadvantages of using single plantwide rate for applying support department cost are
· It may not reflect the actual cost driver of the support department in application of overheads
· It will lead to variations in cost allocation and reflect inaccurate product cost
· It will lead to huge over or under-absorption of overheads if the cost driver of support department is different from the one used in calculation of plantwide rate.
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