Factory overhead is applied at a predetermined rate when a job is completed.

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Factory overhead is applied at a predetermined rate, often called the predetermined overhead rate, based on estimated indirect costs and expected production activity. This rate is used to allocate overhead costs to individual jobs or products based on their usage of resources such as labor and machine hours. Once a job is completed, actual production data is compared to the estimated rates and any over or underapplied overhead costs are adjusted through an adjusting entry.

Factory Overhead Is Applied at a Predetermined Rate When a Job