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:

Marginal Cost

The extra expense associated with manufacturing an additional unit of a product or service.

Variable Cost

Expenses that fluctuate based on the level of production or the amount of output.

Total Cost

The complete cost of producing a specific quantity of output, including both fixed and variable costs.

Average Total Cost

The average cost for each unit produced, calculated by dividing the total production expenses by the quantity of units made.