What Is Blanket Overhead Rate;5 Examples You Must Know

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.

blanket overhead rate

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