What approach to allocating overhead expenses will be more accurate?
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Some firms pool overhead into a single plantwide overhead pool, while others collect overhead costs into manufacturing departments, each of which has an overhead cost pool and overhead cost application rate. Which approach is likely to provide more accurate cost numbers for cost estimating, pricing, and performance evaluation?
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The expert determines the approach to allocating overhead expenses that will be more accurate.
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When a single plantwide overhead pool is used costs are applied to products based on a predetermined overhead rate. Overhead costs are treated as a single pool of indirect costs. This approach is useful when indirect costs are low as compared to direct costs.
Allocating overhead costs from different pools of manufacturing departments, provide a more precise breakdown of indirect costs. ...
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