Departmental overhead rates may not correctly assign overhead costs due to:

A) the high correlation between direct labour-hours and the incurrence of overhead costs.
B) the use of direct labour-hours in allocating overhead costs to products rather than machine time or quantity of materials used.
C) difficulties associated with identifying cost pools for the first stage of the allocation process.
D) overreliance on volume as a basis for allocating overhead costs where products differ regarding the number of units produced, lot size, or complexity of production.

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Rapheal Dikro · Accepted Answer

Final Answer : D, Explanation :  Departmental overhead rates allocate overhead costs based on volume, typically measured in direct labour-hours. However, this method falls short when products differ in terms of units produced, lot size or complexity of production, as overhead costs are not always strictly correlated with volume. Therefore, departmental overhead rates may not correctly assign overhead costs.

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