The predetermined overhead rate is calculated by dividing the prior period's overhead cost by the prior period's allocation base (i.e. ,activity level).

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated using the prior period's data. It is not based on current or future period's data. Additionally, the formula uses the prior period's actual overhead cost and actual activity level, not an allocation base. However, historic relationships between overhead costs and activity levels can be used to estimate the predetermined overhead rate if prior period data is not available.

The Predetermined Overhead Rate Is Calculated by Dividing the Prior