Dictionary of Accounting Terms: multiple overhead rates
multiple overhead rates
manner of measuring product costs.A different predetermined overhead rate is set for each department of a factory, rather than having a single predetermined rate for the entire factory. When products are heterogeneous, receiving uneven attention and effort as they move through various departments, departmental rates are necessary to achieve more accurate and equitable product costs. For example, if department A is labor intensive, application of overhead costs could be done more equitably on a basis of direct labor hoursor labor cost. If department B is machine oriented, allocation should be based on machine hours.
