What is a plantwide overhead rate?

The plantwide overhead rate is a single overhead rate that a company uses to allocate all of its manufacturing overhead costs to products or cost objects.

Using a plantwide overhead rate is acceptable in the following circumstances:

• The total amount of overhead to be allocated is so small that using multiple allocation rates to achieve a higher level of allocation accuracy is unnecessary;
• The services provided by the various company departments are relatively similar (a rarity); or
• The single allocation base used is acceptable for allocating all of the overhead costs.

Conversely, a single plantwide overhead rate is not acceptable if a company has a large amount of overhead to allocate, services provided by the various departments are highly differentiated, or it is apparent that a number of different allocation bases should be used.

In reality, the typical company avoids the use of a single plantwide overhead rate, and instead uses a small number of cost pools that are separately allocated with different overhead rates.

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