What elements are involved in computing a predetermined overhead rate?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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What elements are involved in computing a predetermined overhead rate?
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Predetermined overhead rate: A predetermined rate is an estimated amount of overhead costs that managerial accountants calculate an activity base will use. This rate is then used to allocate the overhead costs to the production process based on the rate and the corresponding activity base.

                                                                                   OR

Predetermined overhead rate is used to apply manufacturing overhead to products or job orders and is usually computed at the beginning of each period by dividing the estimated manufacturing overhead cost by an allocation base (also known as activity base or activity driver). Commonly used allocation bases are direct labor hours, direct labor dollars, machine hours, and direct materials.

 

 

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