QAEconomics › Which of the following companies would be best served by a plantwide overhead rate?
Q

Which of the following companies would be best served by a plantwide overhead rate?

1. A company that manufactures few products and whose operations are labor intensive.

2. A company that manufactures many different products and whose operations are highly mechanized.

3. A company whose products use overhead resources in very different ways.

4. A company whose products differ in batch size and complexity and consume different amounts of overhead resources.

A

Answer: 4. A company whose products differ in batch size and complexity and consume different amounts of overhead resources.

An overhead rate refers to a single overhead percentage that an industry or a company spends in order to allocate its production costs to goods or services. i.e. the amount of money used by an industry in the production of goods and services to customers.

A company whose products differ in batch size and complexity would be best served by a plant wide overhead rate. This is because assigning plant wide overhead rates will result in an increase in the company’s cost subsidies.

4 months ago
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