Question

Which of the following statements is not correct concerning multiple overhead rate systems?

a.A multiple overhead rate system is more complex than a system based on a single plantwide overhead rote.
b.In departments that are relatively labor-intensive their overhead costs should be applied to jobs based on machine-hours rather than on direct labor hours.
c.A multiple overhead rate system is usually more accurate than a system based on a single plantwide overhead rate.
d.A company may choose to create a separate overhead rate for each of its production departments.

Answer 1

The incorrect statement about multiple overhead rate systems is that labor-intensive departments should apply overhead costs based on machine-hours; such costs should be based on direct labor hours in these areas.

Step-by-step explanation:

The statement that is not correct concerning multiple overhead rate systems is: b. In departments that are relatively labor-intensive their overhead costs should be applied to jobs based on machine-hours rather than on direct labor hours. This statement is incorrect because in labor-intensive departments, overhead costs should typically be applied based on direct labor hours rather than machine hours. A multiple overhead rate system is indeed more complex than a single plantwide rate (a) and is usually more accurate (c), and companies may choose to create separate overhead rates for each department (d).

In terms of production technology, as the cost of labor rises, firms will substitute labor with machinery, indicating a shift towards more cost-efficient production methods. This is particularly evident in production technology 3 which uses less labor and more machinery and is selected for its lowest total cost when machines are cheaper.