Which of the following statements is true with regard to the
plantwide overhead rate method?
The rate is determined using volume-related measures.
It is logical to use this method when overhead costs are not
closely tied to volume-related measures.
This method uses multiple overhead rates.
The rate is determined using measures that are not closely
related to volume.
The method provides the most accurate means of allocating
overhead costs.
Answer
Plant wide Overhead rate: Plant wide overhead rate is used to apply manufacturing overhead to work in process inventory. Usually this plant wide overhead rate will be calculated at the beginning of the period. This rate is used to charge overhead costs to a particular job. It is calculated by dividing the overhead cost with an activity measure related to the volume of production. Generally, labor hours or machine hours are used as a base to calculate the plant wide overhead rate. Thus, the true option is The rate is determined using volume related measures
