Departmental Overhead Rates May Not Correctly Assign Overhead Costs Due

question 74

Multiple Choice

Departmental overhead rates may not correctly assign overhead costs due to:

• A)the high correlation between direct labour-hours and the incurrence of overhead costs.
• B)the use of direct labour-hours in allocating overhead costs to products rather than machine time or quantity of materials used.
• C)difficulties associated with identifying cost pools for the first stage of the allocation process.
• D)overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.

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Definitions:

Real Interest Rate

The interest rate adjusted for inflation, reflecting the real cost of borrowing and the real yield to investors.

Nominal Rate

The interest rate before adjustments for inflation, representing the face value of financial transactions.

Rate of Inflation

The measure of the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Net Present Value

The present value of cash flows minus the present value of cash outlays, used in capital budgeting to assess the profitability of an investment or project.