Overhead costs are assigned to Work-in-Process Inventory using a predetermined rate.

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Overhead costs, such as indirect labor and indirect materials, are not directly traceable to a specific product and therefore must be allocated using a predetermined overhead rate. This rate is typically calculated by dividing the total estimated overhead costs for the period by an estimated activity base, such as direct labor hours, machine hours, or direct labor costs. This predetermined overhead rate is then used to assign overhead costs to each unit of Work-in-Process Inventory based on the actual amount of the selected activity base used in production.

Overhead Costs Are Assigned to Work-In-Process Inventory Using a Predetermined