Since a predetermined overhead rate is established before a period begins, this rate is revised many times during the period to compensate for inaccurate estimates previously made.

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A predetermined overhead rate is established before a period begins based on estimated costs and expected production levels. This rate remains constant throughout the period and is used to allocate overhead costs to products or services. While actual overhead costs may differ from estimated costs, the predetermined overhead rate is not revised during the period. Instead, any variances between actual and estimated overhead costs are recorded separately and analyzed at the end of the period.

Since a Predetermined Overhead Rate Is Established Before a Period