Question

Which statement is false?

A. Using a single plantwide overhead allocation rate is the simplest method of allocating overhead costs.
B. The predetermined overhead allocation rate is based on actual costs.
C. Allocation focuses on indirect costs.
D. An allocation system that uses departmental overhead allocation rates is more refined than one that uses a plantwide overhead allocation rate.

Answer 1

Option B, The predetermined overhead allocation rate is based on actual costs.

Step-by-step explanation:

The term "pre-set overall rate" refers to the allocation rate at the outset of a project, which is based on the expected cost of overhead output for a certain reporting period.

This rate is often used to make book closure quicker as it eliminates estimation of real overhead costs as part of the closing process at the end of the period. Nevertheless, at least at the end of every fiscal year, the disparity between the real and expected overhead sums must be reconciled.

The predetermined rate is derived by calculation as follows:

Estimated amount of manufacturing overhead to be incurred in the period ÷ Estimated allocation base for the period