A predetermined overhead rate is an overhead rate that is calculated before production begins. This rate is then used to apply overhead to production costs.
The predetermined overhead rate is calculated by dividing the total estimated overhead costs by the total estimated activity for the period. This rate is then applied to the actual activity for the period to calculate the total overhead costs.
The predetermined overhead rate is an important tool for managers as it allows them to apply overhead costs to production in a systematic and accurate manner. It also allows managers to budget for overhead costs and to track actual overhead costs against the budget.
There are a number of factors that can affect the accuracy of the predetermined overhead rate. These include the estimates of the overhead costs and the activity level for the period. If these estimates are inaccurate then the overhead rate will be inaccurate.
The predetermined overhead rate is only as accurate as the estimates on which it is based. It is important that managers have a good understanding of the factors that can affect the accuracy of the rate before using it to apply overhead costs to production.
What is a predetermined overhead rate?
A predetermined overhead rate is an estimated overhead rate used to apply manufacturing overhead to production in order to create a predetermined overhead application rate.
How is a predetermined overhead rate calculated?
A predetermined overhead rate is calculated by dividing the estimated manufacturing overhead cost by the estimated production activity for the period.
What are the benefits of using a predetermined overhead rate?
Some benefits of using a predetermined overhead rate include having a more accurate product cost making it easier to budget and forecast future costs and providing information for decision making.
What are some disadvantages of using a predetermined overhead rate?
Some disadvantages of using a predetermined overhead rate include not being able to accurately predict certain costs such as variable costs and the potential for overestimating or underestimating costs.
How can a predetermined overhead rate be used to estimate manufacturing overhead cost?
A predetermined overhead rate can be used to estimate manufacturing overhead cost by multiplying the predetermined overhead rate by the actual production activity for the period.
How can a predetermined overhead rate be used to apply manufacturing overhead to production?
A predetermined overhead rate can be used to apply manufacturing overhead to production by multiplying the predetermined overhead rate by the actual production activity for the period.
What is the difference between a predetermined overhead rate and a variable overhead rate?
A predetermined overhead rate is an estimated overhead rate used to apply manufacturing overhead to production while a variable overhead rate is the actual overhead rate incurred during production.
What is the difference between a predetermined overhead rate and a fixed overhead rate?
A predetermined overhead rate is an estimated overhead rate used to apply manufacturing overhead to production while a fixed overhead rate is the actual overhead rate incurred during production.
What is the difference between a predetermined overhead rate and an applied overhead rate?
A predetermined overhead rate is an estimated overhead rate used to apply manufacturing overhead to production while an applied overhead rate is the actual overhead rate incurred during production.
How can a predetermined overhead rate be used to estimate manufacturing overhead cost?
A predetermined overhead rate can be used to estimate manufacturing overhead cost by multiplying the predetermined overhead rate by the actual production activity for the period.
How can a predetermined overhead rate be used to apply manufacturing overhead to production?
A predetermined overhead rate can be used to apply manufacturing overhead to production by multiplying the predetermined overhead rate by the actual production activity for the period.
What are the benefits of using a predetermined overhead rate?
Some benefits of using a predetermined overhead rate include having a more accurate product cost making it easier to budget and forecast future costs and providing information for decision making.
What are some disadvantages of using a predetermined overhead rate?
Some disadvantages of using a predetermined overhead rate include not being able to accurately predict certain costs such as variable costs and the potential for overestimating or underestimating costs.
How can a predetermined overhead rate be used to estimate manufacturing overhead cost?
A predetermined overhead rate can be used to estimate manufacturing overhead cost by multiplying the predetermined overhead rate by the actual production activity for the period.
How can a predetermined overhead rate be used to apply manufacturing overhead to production?
A predetermined overhead rate can be used to apply manufacturing overhead to production by multiplying the predetermined overhead rate by the actual production activity for the period.
