How to calculate predetermined overhead rate?

Understand the Problem

The question is asking for the method to calculate the predetermined overhead rate, which is commonly used in budgeting and cost accounting. This involves determining the estimated overhead costs and dividing them by an estimated allocation base such as direct labor hours or machine hours.

More Information

The predetermined overhead rate helps companies allocate overhead costs to products or job orders based on an estimated rate, improving cost management and budgeting.

Tips

A common mistake is not using the same period for both estimated costs and the allocation base. Ensure consistency in the time period for accuracy.

Sources

• Predetermined Overhead Rate - Accounting for Management - accountingformanagement.org
• Predetermined Overhead Rate Formula – Indeed - indeed.com