Question

Which of the following mathematical equations is used to calculate a predetermined overhead rate? a.Predetermined Overhead Rate = Actual Annual Cost of Goods Sold / Estimated Semi-annual Labor Hours b.Predetermined Overhead Rate = Actual Annual Overhead / Actual Annual Activity Level c.Predetermined Overhead Rate = Estimated Annual Manufacturing Cost / Estimated Quarterly Activity Level d.Predetermined Overhead Rate = Estimated Annual Overhead / Estimated Annual Activity Level e.Predetermined Overhead Rate = Estimated Annual Overhead / Actual Annual Activity Level

Answer 1

Answer:

d. Predetermined Overhead Rate = Estimated Annual Overhead / Estimated Annual Activity Level

Explanation:

Predetermined Overhead rate is based on the estimated activity level, based on the estimated annual activity cost.

It calculates the rate per hour for the activity or overheads to be charged.

After the actual overheads are incurred the calculation of overheads over-applied, or under-applied is done, based on actual hours $\times$ predetermined overhead hours.