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What is the difference between Pre-determined and Blanket Overhead Absorption Rate ?
A pre-determined overhead rate is one that is calculated using the budgeted figures for production and for overheads (as is normally the case).
A blanket absorption rate is one calculated for the whole factory rather than calculating one for each department separately (which is better).
So Predetermined OH Rate could be Blanket when the whole factory is considered, right ?
î am asking because someone insisted Predetermined uses only units as the allocation base (which baffled me) unlike Blanket.
Absorption rates can be calculated on any basis (usually it is on either units or on hours).
Whichever basis is used, pre-determined rates are calculated using budget figures.This applies whether we are calculating an overall blanket rate or calculating a rate for each department.
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