Overhead rate

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Saurabh tambat (Querist)
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12 July 2021 One question related to blanket overhead rate ....
Assume there are two departments , dept. A ( absorbing overheads on Direct material cost basis) and dept. B ( absorbing overheads on direct labour cost basis). Is it possible to divide *total overheads of entire factory* by the *SUM of DM cost of dept A and DL cost of dept B* to get blanket overhead rate ? If not, why not ?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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13 July 2021 Not possible.
Reason, A may be manufacturing unit is using material for production so material cost is selected for allocation.
B department may be providing services so labour cost is selected for allocation.

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