Multiple predetermined overhead rates versus a single predetermined Term Paper

Multiple predetermined overhead rates versus a single predetermined overhead rate - Term Paper Example A multiple predetermined overhead rate is a system through which the product cost is estimated. This is where in every single different department in the company a single separate predetermined overhead rate is calculated and then they are summed together. This means that though if they are summed up they produce a single predetermined overhead rate they are present as independent multiple overhead rates of the company’s different departments. This type of estimation of the predetermined overhead rate is important especially in the instance where the products are heterogeneous. This is because as the products move along the various departments they receive uneven effort and attention therefore calling for the different departmental rates in the achieving of equitable and even product costs estimations. The calculation of the single predetermined overhead rate is more common in most companies’ than the multiple predetermined overhead rates. This is largely attributed to the fact tat the single overhead rate is much simpler to estimate than the multiple overhead rates. This is due to the fact that it involves a single calculation of the overheard rate of the whole company’s departments as one while the multiple overhead rates involve calculation of the rates in the different departments separately (Sherman 43). In this reason also it is thus estimated to be less of a cost in resources and time to use the single overhead rate than the multiple overhead rates. Taking for instance a survey conducted on the popularity of the use of the single overhead rate and the multiple overhead rate established that an approximate 50% of companies use both types. This can be attributed to the fact that the multiple overhead rates are more detailed and informative especially the fact that most companies conduct heterogeneous production. Job order costing Job order costing refers to a costing system in businesses that is applied to the accumulation of costs by the difference jobs it engages in, and it is mostly applied where there are various different products that are being produced per time period. It involves the calculation of the average cost per unit product which is arrived at through the tracing of costs through to