When using multiple departmental rates, overhead costs must first be traced to each department and then divided by the measure of output for that department to yield the departmental overhead rate. Overhead is applied to products using this rate as products pass through each department.

 Learning Objective 04-P2: Allocate overhead costs using the departmental overhead rate method.

When using multiple departmental rates, overhead costs must first be traced to each department and then divided by the measure of output for that department to yield the departmental overhead rate. Overhead is applied to products using this rate as products pass through each department.

 
Explanation

Knowledge Check 01
 
Many companies have several departments that produce various products and consume overhead resources in substantially different ways. Under such circumstances, the single plantwide overhead rate method can produce cost assignments that fail to accurately reflect the cost to manufacture a specific product. In these cases, use of multiple overhead rates can result in better overhead cost allocations and improve management decisions. As such, the departmental overhead rate method is more refined than the plantwide overhead rate method.

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