Question

Cost distortion is more likely to occur when

A.
departments incur different types of overhead and the products or jobs use the departments to a different extent.
B.
all products require the same amount and type of processing activities.
C.
a company manufactures one type of product.
D.
a company uses departmental overhead rates rather than a single plantwide overhead rate.

Answer 1

Cost distortion is more likely to occur when departments incur different types of overhead and the products or jobs use the departments to a different extent. It can also occur when a company uses departmental overhead rates instead of a single plantwide overhead rate.

Step-by-step explanation:

In the context of cost distortion, it is more likely to occur when departments incur different types of overhead and the products or jobs use the departments to a different extent.

This means that if different departments within a company have varying costs associated with their operations, and if certain products or jobs rely more heavily on specific departments than others, it can lead to cost distortion.

Cost distortion can also be more likely to occur when a company uses departmental overhead rates instead of a single plantwide overhead rate.

Departmental overhead rates assign costs to specific departments based on their usage, which can result in distorted cost allocation if the departments have different levels of activity.

For example, if Department A has a higher overhead rate compared to Department B, and a product uses Department A more than Department B, it will disproportionately bear a higher share of overhead costs, leading to cost distortion.