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Two jobs absorb $54,600 of factory overhead in total under a single factory wide rate. What happens to that total when departmental rates are used instead?
AIt rises because each department carries its own rate
BIt falls because idle department hours are removed
CIt stays at $54,600 but splits differently by job
DIt stays at $54,600 and splits the same way by job
Answer & Solution
Correct answer: C. It stays at $54,600 but splits differently by job
1. Both methods spread the same pool of budgeted factory overhead, so the pool itself does not change.
2. Under the single rate Job 1 takes $38,220 and Job 2 takes $16,380, a total of $54,600.
3. Under departmental rates Job 1 takes $38,625 and Job 2 takes $15,975, again a total of $54,600.
4. The split moves because the two jobs use the two departments in different proportions.
5. A method that changed the total would be absorbing a different pool, which is not what a rate change does.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 4.3 Departmental Rates to Estimate Factory Overhead_
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