Question

A company manufactures and sells three products. The products are all manufactured at the same facility. The controller of the company has decided to accumulate all budgeted overhead costs for the manufacturing facility into a single cost pool. The cost pool is then allocated to the three products based on the direct labor hours used by each product. What type of overhead rate has the controller most likely used in this allocation methodology?

Answer 1

Plant-wide rate.

Step-by-step explanation:

A plant-wide rate can be defined as a single overhead rate used by business firms or companies to allocate the manufacturing overhead costs to the level of output or productivity.

In this scenario, company manufactures and sells three products. The products are all manufactured at the same facility. The controller of the company has decided to accumulate all budgeted overhead costs for the manufacturing facility into a single cost pool. The cost pool is then allocated to the three products based on the direct labor hours used by each product.

Hence, the type of overhead rate the controller most likely used in this allocation methodology is the plant-wide rate.