Question

Which of the following is an example of the calculation of a predetermined overhead rate? A) Estimated overhead divided by estimated direct labor dollars B) Estimated overhead divided by actual direct labor hours C) Actual units produced divided by estimated overhead D) Estimated direct labor hours divided by estimated overhead

Answer 1

A) Estimated overhead divided by estimated direct labor dollars

Step-by-step explanation:

Predetermined overhead rate is used to apply estimated manufacturing overhead cost to the cost of products or labor for a certain period allocated for reporting. It is usually calculated at the beginning of a certain period and it is also necessary for computing the actual manufacturing overhead cost at the end of the fiscal year.

The predetermined overhead rate can be calculated by dividing the estimated manufacturing overhead by the estimated direct labor dollars or estimated direct labor hours or estimated machine hours for that period. The calculation is based on estimated values, not the actual cost