CAF-5 · Chapter 2 · Question 7 of 10
When a single overhead absorption rate is calculated for the entire factory by summing all overhead costs and dividing by the total factory base (e.g., total labour hours), regardless of departmental boundaries, this rate is known as a:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Blanket rate
Explanation
A blanket rate sums up the overhead costs and labour/machine hours of all departments and evenly distributes the overheads factory-wide, ignoring the individual usage intensities of separate departments.
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