Question

A CPA would recommend changing from plantwide OH rate application to departmental rates under which of the following circumstances

a) Homogeneous products
b) Heterogeneous products
c) Single cost pool
d) High variability in overhead costs

Answer 1

A CPA would recommend changing from plantwide OH rate application to departmental rates under the circumstances of heterogeneous products and high variability in overhead costs.

Step-by-step explanation:

A CPA would recommend changing from plantwide overhead rate application to departmental rates under the circumstances of (b) Heterogeneous products and (d) High variability in overhead costs.

For heterogeneous products, each department might have different cost drivers that affect overhead costs. By using departmental rates, the costs can be allocated more accurately, reflecting the specific activities and resources of each department. This allows for a more precise determination of the cost of each product.

High variability in overhead costs can also warrant a shift to departmental rates. If the overhead costs are significantly different across departments, using a plantwide overhead rate would not accurately allocate the costs. By using departmental rates, the costs can be allocated based on the unique characteristics of each department and result in a more accurate cost allocation.