Final answer:
After all support service costs are allocated to producing departments, each department can compute its overhead rate by dividing total allocated overhead costs by an appropriate base, aiding in pricing, budgeting, and financial analysis.
Step-by-step explanation:
Upon allocation of all support service costs to producing departments, each department can compute its overhead rate. This is a crucial step in management accounting that helps departments to understand the indirect costs of production. By allocating support service costs, such as maintenance and security, accurately to the departments that incur these costs, each department can then calculate its overhead rate by dividing the total allocated overhead costs by an appropriate base (like direct labor hours or machine hours).
Understanding overhead rates is essential for pricing, budgeting, and financial analysis, which in turn aids departments in making strategic decisions. The calculation of these rates also allows them to better predict and control costs, contributing to the overall financial health of the company.
However, determining direct labor usage requirements, expected rework requirements, and the efficiency of the operations of its support department are beyond the primary purpose of calculating overhead rates after service cost allocation.