ECONOMICS

Detailed explanation-1: -The predetermined overhead rate is set at the beginning of the year and is calculated as the estimated (budgeted) overhead costs for the year divided by the estimated (budgeted) level of activity for the year. This activity base is often direct labor hours, direct labor costs, or machine hours.

Detailed explanation-2: -To compute the overhead rate, divide your monthly overhead costs by your total monthly sales and multiply it by 100. For example, if your company has $80, 000 in monthly manufacturing overhead and $500, 000 in monthly sales, the overhead percentage would be about 16%.

Detailed explanation-3: -A pre-determined overhead rate is the rate used to apply manufacturing overhead to work-in-process inventory. The pre-determined overhead rate is calculated before the period begins. The first step is to estimate the amount of the activity base that will be required to support operations in the upcoming period.

Detailed explanation-4: -With the manufacturing overhead costs and the machine hour totals, you can calculate the predetermined overhead rate by dividing the overhead costs by the machine hours. For instance, if the manufacturer estimates $10, 000 in overhead costs with 20, 000 machine hours, the predetermined overhead rate is 50 cents per unit.

Detailed explanation-5: -Answer and Explanation: A predetermined overhead rate is an overhead rate that is estimated by the company at the start of the operating period. Hence, it is computed by dividing the estimated manufacturing overhead cost by the estimated total units of allocation based.