Since a predetermined overhead allocation 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 allocation rate is established before a period begins based on the estimated total overhead costs and estimated level of activity. This rate remains constant throughout the period and is not revised many times. However, at the end of the period, the actual overhead costs incurred and the actual level of activity are compared to the estimates, and any differences are adjusted in the form of underapplied or overapplied overhead.

Since a Predetermined Overhead Allocation Rate Is Established Before a Period