Which type of accounting system uses a different overhead rate for each production department?

• A. Activity-based costing method
• B. Departmental overhead rate method
• C. Plantwide overhead rate method
• D. Job order costing method

Answer: (B)

Verified step by step guidance

1. Understand the concept of overhead rates: Overhead rates are used to allocate indirect costs to products or services. Different methods exist to calculate these rates, depending on the level of detail and accuracy required.
2. Learn about the Departmental Overhead Rate Method: This method assigns a unique overhead rate to each production department. It recognizes that different departments may incur varying levels of overhead costs based on their activities and resources used.
3. Compare with other methods: The Plantwide Overhead Rate Method uses a single overhead rate for the entire plant, which may not accurately reflect the cost differences between departments. Activity-Based Costing allocates costs based on activities rather than departments, and Job Order Costing focuses on individual jobs rather than departmental overhead rates.
4. Identify the advantages of the Departmental Overhead Rate Method: This method provides more accurate cost allocation by considering the specific overhead costs of each department, making it suitable for companies with diverse production processes.
5. Apply the concept: To use the Departmental Overhead Rate Method, calculate the overhead rate for each department by dividing the total overhead costs of the department by its allocation base (e.g., machine hours or labor hours). Then, apply these rates to allocate overhead costs to products or services based on their usage of departmental resources.