Predetermined overhead rates are calculated by dividing estimates of total factory overhead cost in the upcoming accounting period (usually a year) by an estimated usage or capacity of some unit of related activity (such as direct labor hours).

Question

Quizplus · Accepted Answer

Predetermined overhead rates are indeed calculated by dividing the estimated total factory overhead costs for a period by the estimated total units of the allocation base (such as direct labor hours), allowing businesses to allocate overhead costs to products or job orders more accurately throughout the year.

Predetermined Overhead Rates Are Calculated by Dividing Estimates of Total