From Management Accounting: Concepts, Techniques & Controversial Issues
Chapter 6
Provided by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
Chapter 6 |
MAAW's Textbook Table of Contents
| Exhibit 6-2 Applicability of Overhead Allocation Methods |
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| Method of Assigning Overhead |
Number of Stages |
Type of Allocations |
Basis of Overhead Rates |
When Applicable |
| Single Plant Wide Rate |
1 | From a
single aggregated cost pool to products. |
A
production volume related activity measure, e.g., direct labor hours, machine hours etc. |
Plant produces only one, or a few similar products that consume all indirect resources in the same proportions, e.g., Product X consumes 10% of each indirect resource in the plant. |
| Single Rate Per Department | 2 | From service departments to producing departments' single cost pools (overhead accounts), to products. | A production volume related activity measure. These may be different for each department. | Each department produces only one, or a few similar products that consume all of a department's indirect resources in the same proportions, e.g., Product X consumes 20% of all indirect resources in Department A, 10% of all indirect resources in Department B, etc. |
| Multiple Activity Based Rates Per Department | 2 or More | From service departments, to producing departments' activity cost pools, to products. | Both production volume related and non-production volume related activity measures, e.g., number of purchase orders, number of setups, etc. | Each department produces many products that consume resources within each department in different proportions, e.g., Product X consumes 30% of the power, 15% of the engineering work and 20% of the repair in Department A. Multiple rates are needed in Department A. |