Final Answer:
The statement "The departmental overhead rate method allocates overhead costs based on different rates for different departments" is true with regard to the departmental overhead rate method.
Step-by-step explanation:
The departmental overhead rate method is a cost allocation approach that assigns overhead costs to different departments within an organization. In this method, each department is treated as a separate cost center, and overhead costs are allocated based on the specific cost drivers or factors relevant to each department. The statement is accurate because the method involves calculating distinct overhead rates for each department, reflecting the unique characteristics and activities of each area.
To elaborate, the departmental overhead rate is typically computed by dividing the total estimated overhead costs of a department by the total estimated activity level or cost driver for that department. Mathematically, this is expressed as
This allows for a more accurate allocation of overhead costs, as different departments may have different cost structures and require varying amounts of resources.
The departmental overhead rate method offers a more nuanced and detailed approach to overhead allocation compared to a single plant-wide rate. It provides management with a clearer understanding of how overhead costs relate to the specific activities of each department, enabling more informed decision-making regarding resource allocation and cost control.