Final answer:
When a company uses only one rate to allocate overhead costs, the accounting system treats all overhead as if the costs were directly related to the production of the specific product.
Step-by-step explanation:
In accounting, when a company uses only one rate to allocate overhead costs, the accounting system treats all overhead as if the costs were directly related to the production of the specific product. This is known as a traditional costing system, where all overhead costs are allocated based on a single predetermined rate, typically calculated using direct labor hours or machine hours.
For example, let's say a company has a total of $100,000 in overhead costs and produces 10,000 units. They would allocate $10 of overhead costs to each unit, regardless of the actual overhead costs incurred in producing that specific unit. This approach assumes that the overhead costs are equally distributed across all units produced.
However, this method may not accurately reflect the actual overhead costs incurred by each product, as some products may require more resources and generate higher overhead costs than others. In such cases, more sophisticated costing systems like activity-based costing may be used to allocate overhead costs based on the actual activities performed and the resources consumed by each product.