Using a Plantwide Factory Overhead Rate Distorts Product Costs When

question 78

Multiple Choice

Using a plantwide factory overhead rate distorts product costs when:

• A) products require different ratios of allocation-base usage in each production department
• B) significant differences exist in the factory overhead rates used across different production departments
• C) both A and B are true
• D) neither A nor B are true

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Definitions:

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard quantity allowed for the actual output, multiplied by the standard price per unit of materials.

Materials Price Variance

The difference between the actual unit price paid for an item and the standard price, multiplied by the quantity purchased.

Standard Quantity

The expected or established quantity of materials or labor expected to be used during a manufacturing process or production cycle.

Standard Price

Standard price is the pre-determined cost that a company expects to pay for goods, materials, or services, used in budgeting and cost control.