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The cost object of the plantwide overhead rate method is the unit of product.
Plantwide Overhead Rate Method
- When a business allocates all of its manufacturing overhead expenses to products or cost items, it does so using a single overhead rate known as the plantwide overhead rate.
- In smaller organizations with straightforward cost structures, it is most frequently used.
- Instead of using a single plantwide overhead rate, the usual business uses a limited number of cost pools that are each allocated with a variable overhead rate.
- While doing so increases the amount of time needed to close the books, it also increases the accuracy of overhead allocation.
- As a result, there is a trade-off between the increased financial statement accuracy brought on by the additional accounting work required to track and distribute numerous cost pools.
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