ECONOMICS

Detailed explanation-1: -The rate established at the beginning of a period that uses estimated overhead and an allocation factor such as estimated direct labor, and that is used to assign overhead cost to jobs is the: Predetermined overhead rate.

Detailed explanation-2: -The predetermined overhead rate is determined at the beginning of the year by taking into consideration the budgeted overhead cost and overhead cost drivers such as direct labor hours or direct labor cost.

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: -Monitoring relative expenses: Predetermined overhead rate provides companies with a percentage they can monitor on a quarterly, monthly and even weekly basis, with the amount of base and expense being proportionate to each other. This can help you ensure costs aren’t escalating.

Detailed explanation-5: -A predetermined overhead rate is calculated at the start of the accounting period by dividing the estimated manufacturing overhead by the estimated activity base. The predetermined overhead rate is then applied to production to facilitate determining a standard cost for a product.