## Types of Overhead Rates
### 1. Normal Rate (Actual Rate)
$$\text{Normal Rate} = \frac{\text{Actual Overheads}}{\text{Actual Base}}$$
- Calculated after the period ends using actual figures
- Also called the actual overhead rate
- Problem: Rates are known only at period end; no advance pricing is possible
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### 2. Pre-determined Overhead Rate
$$\text{Pre-determined Rate} = \frac{\text{Budgeted Overheads}}{\text{Budgeted Base}}$$
- Calculated in advance at the start of the period
- Enables timely cost ascertainment and pricing decisions
- Causes under-absorption or over-absorption when actuals differ from budget
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### 3. Blanket Overhead Rate
$$\text{Blanket Rate} = \frac{\text{Total Overheads for the Factory}}{\text{Total Units of Base for the Factory}}$$
- A single rate for the entire factory
- When to use:
1. Only one major product is produced, OR
2. Multiple products exist, but all pass through all departments AND are processed for the same time in each department
- Simple but inaccurate for diverse product lines
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### 4. Departmental Overhead Rate
$$\text{Departmental Rate} = \frac{\text{Overheads of the Department}}{\text{Corresponding Base of that Department}}$$
- A separate rate for each production department or cost centre
- Preferred when: product lines vary, machinery usage differs across departments, or factory conditions are not uniform
- More accurate than blanket rate for diverse manufacturing
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### Comparison Summary
| Rate | Timing | Scope | Best for |
|---|---|---|---|
| Normal (Actual) | Post-period | Factory/Dept | Historical analysis |
| Pre-determined | Pre-period | Factory/Dept | Budgeting & pricing |
| Blanket | Pre-period | Whole factory | Single product / uniform processing |
| Departmental | Pre-period | Per department | Multi-product, varied operations |