Predetermined overhead rate is the rate that is used to allocate overhead cost to one unit of production. The predetermined overhead rate is calculated on the basis that best represents the company’s overhead costs.
For example, in a labor-intensive manufacturing facility where most of the work is done by laborers, a suitable basis for allocating factory overheads costs to products will be labor hours. In automated plants where most of the work is carried out by machines, a suitable basis will be machine hours. The rate is calculated by dividing the actual factory overhead cost with the most suitable basis (labor hours, machine hours, etc). The formula for the predetermined rate is:
Predetermined overhead rate = Total factory overhead cost / Budgeted labor or machine hours
Sweeten Company had no jobs in progress at the beginning of March
This Excel worksheet relates to the Dickson Company example that is summarized
Norwall Company’s budgeted variable manufacturing overhead cost is $3.00
The standard cost card for the single product manufactured by Cutter,
Moody Corporation uses a job-order costing system with a plantwide
Bunnell Corporation is a manufacturer that uses job-order costing.
In December 2012, Shire Computer’s management establishes the year 2013 predetermined
Wilmington Company has two manufacturing departments—Assembly and Fabrication. It
: Tech Solutions is a consulting firm that uses a job-
Luzadis Company makes furniture using the latest automated technology. The company
