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A predetermined overhead rate is an estimated ratio of overhead costs calculated before a project or job begins. To calculate predetermined overhead rate, use this formula: Estimated manufacturing cost / Estimated total units in allocation base.
The formula for calculating Predetermined Overhead Rate is represented as follows. Predetermined Overhead Rate = Estimated Manufacturing O/H Cost / Estimated total Base Units Where,
A predetermined overhead rate, also known as a plant-wide overhead rate, is a calculation used to determine how much of the total manufacturing overhead cost will be attributed to each unit of product manufactured.
You can calculate predetermined overhead rate by dividing the manufacturing overhead cost by the activity driver. For example, if the activity driver was machine-hours, then you would divide overhead costs by the estimated number of machine hours.
Predetermined Overhead Rate is calculated using the formula given below. Predetermined Overhead Rate = Estimated Manufacturing Overhead Cost / Estimated Units of the Allocation Base for the Period. Predetermined Overhead Rate = $50,000,000 / 10,000 machine hours. Predetermined Overhead Rate = $5,000 per machine hour.
Predetermined Overhead Rate = Estimated Overhead Cost / Estimated Activity Base. The predetermined overhead rate formula is mainly based on estimates. As a result, the overhead costs that will be incurred in the actual production process will differ from this estimate.
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.
Predetermined Overhead rate = Estimated Annual Overhead Cost ÷ Expected Annual Operating Activity. Therefore, = 180,000 ÷ 10,000. = $18 per machine hour. Learn how to calculate predetermined overhead rate.
Predetermined Overhead Rate Formula. The following equation is used to calculate the predetermined overhead rate. UA is the unit of allocation. To calculate a predetermined overhead rate, divide the manufacturing overhead cost by the units of allocation.
The predetermined rate is calculated as shown and is used to apply overhead costs to work in process: \[\dfrac{\text { Estimated (budgeted) Overhead cost }}{\text { Expected (budgeted) Level of Activity }}=\text { Predetermined Overhead Rate } \]