Required information LO 4-1: Understand the basic approach in activity-based costing and how it differs from conventional costing. Skip to question In this Learning Objective, we will learn about the three common approaches to assign overhead costs to products: plantwide overhead rate, departmental overhead rates, and activity-based costing. The plantwide overhead rate is the simplest approach to allocating overhead costs but can lead to distorted product costs. The departmental overhead rates are a more refined approach to allocating overhead costs but fall short in situations where a company has a range of products and complex overhead costs. Activity-based costing attempts to assign overhead costs more accurately by identifying the underlying activity that causes the consumption of overhead resources and then allocating overheads based on these activities. Activity-Based Costing Knowledge Check 01