ECONOMICS

Detailed explanation-1: -You can calculate predetermined overhead rate by dividing the manufacturing overhead cost by the activity driver. For example, if the activity driver was machine-hours, then you would divide overhead costs by the estimated number of machine hours.

Detailed explanation-2: -Manufacturing Overhead Formula First, you have to identify the manufacturing expenses in your business. Once you do, add them all up or multiply the overhead cost per unit by the number of units you manufacture. To get a percentage, divide by your monthly sales and multiply that number by 100.

Detailed explanation-3: -To calculate the overhead rate, divide the indirect costs by the direct costs and multiply by 100. If your overhead rate is 20%, it means the business spends 20% of its revenue on producing a good or providing services. A lower overhead rate indicates efficiency and more profits.

Detailed explanation-4: -The total budgeted number of machine hours was 500 hours (2, 000 * 0.25). We can now calculate the variable and fixed overhead absorption rates and show the standard cost card. Variable overhead absorption rate = $6, 000/500 = $12 per machine hour. Fixed overhead absorption rate = $4, 500/500 = $9 per machine hour.