Question

which of the following is a disadvantage of the departmental overhead rate method?
multiple choice

it may fail to accurately assign many overhead costs that are not driven by production volume.

allows each department to have its own overhead rate.

allows each department to have its own allocation base.

the departmental overhead rate is usually more accurate in overhead allocations than the plantwide overhead rate.

the departmental overhead rate is consistent with gaap and can be used for external reporting.

Explanation:

To determine the disadvantage of the departmental overhead rate method, we analyze each option:

• Option 1: Departmental overhead rates often rely on production - volume - based drivers. Overhead costs not driven by production volume (e.g., some administrative or facility - level costs) may not be assigned accurately. This is a disadvantage.
• Option 2: Allowing each department to have its own overhead rate is an advantage, as it can lead to more accurate cost allocation within departments.
• Option 3: Allowing each department to have its own allocation base is also an advantage, as different departments may have different cost drivers.
• Option 4: Stating that departmental overhead rate is more accurate than plant - wide is an advantage of the departmental method.
• Option 5: Consistency with GAAP and usability for external reporting is an advantage, not a disadvantage.

Answer:

A. It may fail to accurately assign many overhead costs that are not driven by production volume.