Question

the plant-wide rate approach is the simplest to apply, but it is also the most costly to implement, compared to a departmental or activity-based cost allocation system.

Answer 1

Although it is the easiest and least expensive to implement, the plantwide rate approach offers the least accurate way to estimate product costs.

When a business allocates all of its manufacturing overhead expenses to products or cost items, it does so using a single overhead rate known as the plantwide overhead rate. In smaller organizations with straightforward cost structures, it is most frequently used. In the following cases, using a plantwide overhead rate is acceptable:

Because the overall amount of overhead to be allocated is so negligible, it is not required to use several allocation rates to increase allocation accuracy;

The various firm departments' offerings are remarkably similar to one another in terms of services;

The use of a single allocation base to distribute all of the overhead costs is appropriate. On the other hand, if a business has a lot of overhead to distribute, a single plantwide overhead rate is unacceptable.

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