When estimated activity is used in the denominator in the predetermined rate what happens to the predetermined overhead rate as estimated activity decreases?
Example 5: When estimated activity is used in the denominator of the predetermined rate, what happens to the predetermined overhead rate as estimated activity decreases? a. The predetermined overhead rate goes up when activity goes down.
How is predetermined overhead rate determined?
A predetermined overhead rate is calculated at the start of the accounting period by dividing the estimated manufacturing overhead by the estimated activity base. The predetermined overhead rate is then applied to production to facilitate determining a standard cost for a product.
What is the predetermined overhead allocation rate?
A predetermined overhead rate is an allocation rate that is used to apply an estimated cost of manufacturing overhead to either products or job orders.
What is the predetermined overhead rate per machine hour?
The predetermined overhead rate for machine hours is calculated by dividing the estimated manufacturing overhead cost total by the estimated number of machine hours. This formula refers to the predetermined overhead because this overhead total is based on estimations, rather than the actual cost.
Why is predetermined overhead rate used?
A predetermined overhead rate is an allocation rate that is used to apply the estimated cost of manufacturing overhead to cost objects for a specific reporting period.
How do you calculate predetermined overhead rate per direct labor cost?
Predetermined Overhead Rate = Estimated Manufacturing O/H Cost / Estimated total Base Units
- O/H is overhead.
- Total base units could be the number of units or labor hours etc.
What are the two components of a predetermined overhead rate?
The predetermined overhead rate is set at the beginning of the year and is calculated as the estimated (budgeted) overhead costs for the year divided by the estimated (budgeted) level of activity for the year. This activity base is often direct labor hours, direct labor costs, or machine hours.
How do you find the predetermined overhead rate without allocation base?
How do you calculate predetermined overhead rate using direct labor cost?
To calculate the plantwide overhead rate, first divide total overhead by the number of direct labor hours used to find the overhead per labor hour. Next, multiply the overhead per labor hour by the number of labor hours used to produce each unit.
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