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If departmental overhead recovery rates are similar it makes little difference if overheads are applied on a departmental or business wide basis.
When overheads are applied on departmental basis, all the units in that department absorbs same recovery rate. How it is getting little difference?
Could you explain, how this statement is true?All units pass through all departments. So if the rate per unit is similar in each department then the total applied to each unit will be similar the the business wide rate per unit.
So the statement is incorrect. The answer says the statement is correct.
Kaplan study text. Questions section. Question number 41. The answer provided is C.The following statements refer to overhead absorption:
1 Factory rent and rates are typically allocated to departments rather than apportioned.2 A single product firm does not need to apportion overheads to find a cost per unit.
3 If departmental overhead recovery rates are similar it makes little difference if overheads are applied on a departmental or business wide basis.
Which of these statements are correct?
A 1and2only
B 1and3only
C 2and3only
D 1,2and3The statement is not incorrect – it is correct for the reason that I explained in my previous reply.
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