The use of predetermined overhead rates in a job order cost system makes it possible to estimate the total cost of a given job as soon as production is completed

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Predetermined overhead rates are calculated before production begins and are based on estimated total manufacturing overhead costs and estimated activity levels for the upcoming period. By applying this rate to the actual amount of the allocation base used during production, the total overhead cost can be determined and added to the actual direct materials and direct labor costs to obtain the total cost of the job.

In a job order costing system, several documents are used including job order or work order, materials requisitions, labor time records, and overhead cost records to accumulate and record costs associated with a specific job. These documents facilitate the process of assigning direct and indirect costs to individual jobs, which are necessary for pricing, inventory valuation, and decision-making purposes.

The Use of Predetermined Overhead Rates in a Job Order