The material cost base is of limited use, because in most cases no logical relationship exists between the direct materials cost of a product and the use or creation of factory overhead in its production.
One product might be made from high-priced materials and another from less expensive materials, yet both products could use the same manufacturing process and consume the same materials-related overhead resources.
if a direct materials cost base is used to apply factory overhead, the product using expensive materials will be charged more overhead cost than it causes, and the product using less expensive materials will be charged less overhead cost than it causes.
To overcome this discrepancy, two factory overhead rates can by calculated.
In one rate, a measure of usage such as material weight or the number of pieces used can be the base for applying materials-related costs such as purchasing, receiving, inspecting, handling, and storage costs.
In the other rate, a measure of some other relevant activity can be the base for applying the remaining factory overhead costs.
The factory overhead cost of each job or product is then calculated in two parts using the two rates.
Similarly, three or more rates might be used if appropriate.