Predetermined overhead application rate formula
Its predetermined overhead rate was based on a cost formula that estimated $102,000 of manufacturing overhead for an estimated allocation base of $85,000 direct material dollars to be used in production. Formula to Calculate Predetermined Overhead Rate Predetermined Overhead rate is that rate which shall be used to calculate an estimate on the projects which are yet to commence for overhead costs. This would involve calculating a known cost (like Labor cost) and then applying an overhead rate (which was predetermined) to this in order to project an unknown cost (which is the overhead amount). The overhead application rate, also called the predetermined overhead rate, is often used in cost and managerial accounting for calculating variances. The basic formula to calculate the overhead application rate is to divide the budgeted overhead at a particular rate of output by the budgeted activity for the rate of output.