Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 8

Explain how predetermined factory overhead rates are computed and why they are used to apply factory overhead to units of products instead of actual overhead costs.

Step 1 of 3

Pre determined overhead Rate:

Pre determined overhead rate refers to the estimated rate used to allocate factory overheads to the specific job. It is known as the pre determined because it is pre determined on the basis of the upcoming period estimated overhead cost and cost drivers.