Question

In what way are departmental overhead rates similar to a single plantwide overhead rate? How are they different?

Short answer

Both departmental and plant-wide procedures might result in distorted cost assignments. The departmental rates distinguish the costs by considering the differences between departments and allocating overhead to items based on the most appropriate driver for each department.

Step-by-step solution

Meaning of Depatmental Overhead Rate

The percenatge of expected overhead for a certain department and the volume of activities conducted inside that department are reflected in an overhead rate of that department. If the departmental costing approach technique is used, the traditional cost allocation strategy is to multiply the number of units of action by the standard departmental overhead rate.

Explain the similarities and differences between departmental and plant-wide overhead rates

Departmental overhead rates are comparable to single overhead plant rates in certain aspects.

1. To determine overhead rates, both the strategies designate spending based on values.
2. Both techniques have failed to allocate considerable overhead costs in terms of accuracy.

These two approaches differ in following ways:

For a single plan-twide overhead rate, the cost incurred is the cost incurred throughout a plant.

1. Traditionally, overhaed rates are calculated based on the cost of expenses incurred throughout a plant. In contrast departmental overhead rates measure the costs associated with each department.
2. A single or particular product determines the department overhead rate duct. However only one, overhead rate determines the total overhead costs associated with a product process.