Why Is Using Multiple Predetermined Overhead Allocation Rates More Accurate

question 87

Essay

Why is using multiple predetermined overhead allocation rates more accurate than using a single plantwide allocation rate?

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Definitions:

Investment Centers

Divisions or units within an organization that are responsible for both generating revenue and controlling costs, thus having an impact on the investment returns.

Return On Investment

A measure of the profitability of an investment, calculated as the net profit from the investment divided by the cost of the investment.

Residual Income

The amount of income that an individual or business has after all personal debts and expenses, including the cost capital, have been paid.

Financial Performance

An indicator of how well an entity can use assets from its primary mode of business and generate revenues.