Q

QuestionAccounting

The predetermined overhead rate is an estimated rate used in job costing to apply manufacturing overhead costs to products. It is calculated before the accounting period, using an estimated amount of overhead costs and an activity base. Predetermined Overhead Rate = Estimated Overhead Costs / Estimated Activity Base **Step 2:** Choose an Activity Base The activity base can be any measure of activity that drives overhead costs, such as direct labor hours, direct labor costs, or machine hours. For this example, let's choose direct labor hours as the activity base. **Step 3:** Estimate Overhead Costs and Activity Base Let's assume the following estimates for the upcoming accounting period: - Estimated overhead costs: $50,000 - Estimated direct labor hours: 10,000 hours **Step 4:** Calculate Predetermined Overhead Rate Plug the estimates into the formula: Predetermined Overhead Rate = Estimated Overhead Costs / Estimated Activity Base Predetermined Overhead Rate = $50,000 / 10,000 hours Predetermined Overhead Rate = $5 per direct labor hour **