Question

Describe the two-stage process associated with plantwide overhead ratesand departmental overhead rates.

Answer 1

Answer : -

Plant wide overhead cost is a single overhead cost or rate which company uses to allocate cost to the products. The whole manufacturing cost is allocated to the production.

The plant wide overhead cost stage one allocation is allocating overhead cost to production unit. All the manufacturing cost is included in the plant wide overhead rate. The overhead rate is a single plant wide overhead rate which is allocated to different productions of products but only to production.

Departmental overhead rates are each department cost is allocated to that particular department. Stage one in departmental overhead rate is allocating the overhead rates to different particular departments. E.g manufacturing departments will be allocated with only manufacturing overhead cost. Second stage in departmental overhead cost is allocating departments cost to the production. The production has different rates according to the departments.E.g manufacturing department rates will be allocated to product1, product, product3.

Note :- there is only single/one stage in plant wide overhead cost because the basis is the single plantwide overhead cost and cost objects are the products. In departmental overhead rate, in stage one the basis is the overhead cost and cost objects are the different departments and in stage two the basis is the departments and cost objects are the different products.