Question

How would a company determine whether to use a multiple charging rate or a single charging rate?

Answer 1

The plantwide rate i.e. single charging rate is used to determine the overhead cost using the only one base. This method is used when the company manufactures a single product or the manufacturing process is simple enough to be affected by single allocation base.

Multiple charging rates are used when a company produces multiple products and there are multiple departments involved in the production of the product. In such cases, overhead costs will be affected by multiple activities due to which multiple allocation bases are suitable to used to accurately assign overhead costs to the products.