Question

1. Under what two conditions would the multiple production department factory overhead rate method provide more accurate product costs than the single plant-wide factory overhead rate method?

Answer 1

Introduction) The multiple production department factory overhead rate method would provide more accurate product costs than the single plantwide factory overhead method when there are significant differences in the factory overhead rates across different production departments

Single plant wide factoryoverhead rate-

The rate at which the factory or manufacturing overheads are allocate the products is reffered to as single plant wide factory overhead rate.

Multiple production department factory overhead rate-

This allocation method identifies different departments in the process of production. The factory overheads are allocated to products based on overhead rate for each of the production departments.

To explain-

The situations under which the multiple production department overhead rate method provides more precise results for product costs than single plan wide overhead rate method.

..Difference between multiple production department factory overhead or single plant wide factory overhead rate-

Single plantwide factory overhead rate method-A plant-wide overhead rate is a single rate used to assign or allocate all of a company's manufacturing overhead costs to its production output. (Manufacturing overhead costs are the indirect costs of production such as repairs, maintenance, depreciation, electricity, supervision, etc.) Often the plant-wide rate is an amount per machine hour, an amount per labor hour, or a percentage of a product's direct costs.

Multiple production department production rate-

The multiple departmental production overhead rate is an expense rate calculated for each department in a factory production process. The departmental overhead rate is different at every stage of the production process when various departments perform selected steps to complete the final process.

By breaking up overhead costs for individual business sections rather than having a company-wide rate, management can assess corporate inefficiencies more accurately and take more specific action.