Blanket overhead rate is One single overhead absorption rate for the whole factory.One single overhead absorption rate for the whole factory.Some organizations omit the first stage of the two-stage overhead allocation procedure. In other words, they do not assign manufacturing overheads to cost centres. Instead, they establish a single overhead rate for the factory as a whole, and this rate is assigned to all products irrespective of the departments in which they were produced. The term ‘blanket overhead rate is used to describe a single overhead rate that is established for the factory as a whole.
What Is Blanket Overhead Rate;5 Examples You Must Know
If we assume that the total factory overheads for a particular period are 6120000, and 60000 direct labor hours are worked during the period, then the blanket overhead rate will be £2 per direct labor hour, and all products will be charged at this rate. A blanket overhead rate is not a satisfactory method of allocating overheads in a situation where a factory consists of a number of different production centres, and products consume cost centre overheads in different proportions.
