Multiple Predetermined Overhead Rates:

Learning Objectives of the Article:

1. What are multiple predetermined overhead rates?
2. When multiple predetermined overhead rates are used?

When a single predetermined overhead rate is used for entire factory it is called plant wide overhead rate. This is fairly common practice--particularly in smaller companies. But in large companies, multiple predetermined overhead rates are often used.

In a multiple predetermined overhead rate system, each production department may have its own predetermined overhead rate. Such a system, while more complex, is considered to be more accurate. Since it can reflect differences across departments in how overhead costs are incurred. For example, overhead might be allocated based on machine-hours in departments that are relatively machine intensive. When multiple predetermined overhead rates are used, overhead is applied in each department according to its own overhead rate as a job proceeds through the department.

You may also be interested in other relevant articles:

1. Measuring Direct Materials Cost in Job Order Costing System
2. Measuring Direct Labor Cost in Job Order Costing System
3. Application of Manufacturing Overhead
4. Job Order Costing System--The Flow of Costs
5. Multiple Predetermined Overhead Rates
6. Under-applied overhead and over-applied overhead calculation.
7. Disposition of any balance remaining in the manufacturing overhead account at the end of a period
8. Predetermined Overhead Rate and Capacity
9. Recording Non-manufacturing Costs
10. Recording Cost of Goods Manufactured and Sold
11. Job Order Costing in Services Companies
12. Use of Information Technology in Job Order Costing
13. Advantages and Disadvantages of Job Order Costing System
14. Job Order Costing Discussion Questions and Answers
15. Job Order Costing Exercises
16. Case Studies

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