Q63. Write short notes on the following:
- Blanket Rate,
- Departmental Rate,
- Supplementary Rate,
- The absorption and absorption of overhead.
- Blanket Rate: When only one rate is computed for whole factory then it is known as blanket rate. In such case, all expenses of factory are collected and absorbed observed on any variable. It is used in the following case:
- Where only one major product is being produced.
- Where several products are produced but all products pass through all department and all products are processed for the same length of time in each department.
- Departmental Rate: It refer separate rate for each individual cost centre or department. Costs are collected department wise and absorbed on units produced by such department. Where the product lines are varied or there are many products or machinery is used to varying degree in the different department, departmental rate is preferred.
- Supplementary Rate: When Under absorption arise then such under absorption are apportioned over production units. Under absorption divided by total production unit or hours is called supplementary rate.
- Under Absorption and Over Absorption of Overhead: Actual and absorbed overhead rarely match with each other. When actual overhead is more than absorbed overhead, then it is called under absorption of overhead. When absorbed overhead is more than actual overhead then it is called over absorption of overhead.