The Usefulness of Overhead Allocations Based on a Plantwide Overhead

question 118

True/False

The usefulness of overhead allocations based on a plantwide overhead rate depends on two crucial assumptions: (1)the overhead cost is correlated with the allocation base; and (2)all products use overhead cost in similar proportions.

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Definitions:

Accumulated Depreciation

The total depreciation of an asset up to a single point in its life, representing how much of its value has been used up over time.

Equipment

Tangible assets used in operations, such as machinery or office machines, which have a useful life longer than a year.

Straight-Line Method

A depreciation method that allocates an equal amount of the cost of an asset to each year of its useful life.

Fully Depreciated

A term used when a fixed asset has been depreciated to its salvage value and no longer carries a cost on the balance sheet except its possible residual value.