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β 16y agoPredetermined overhead rate is calculated according to the normal production capacity of the plant.
Wiki User
β 16y agoYou take estimated overhead divided by the estimated level of production activity. It is used to assign overhead to production.
The two types of overhead are fixed overhead and variable overhead. Fixed overhead remains constant regardless of production levels, while variable overhead fluctuates in direct proportion to production activity.
Predetermined overhead rate is that overhead rate calculated before start of production to allocate overhead costs to units of products by using some ratio in relation to some other cost like material cost or labor cost or labor hours etc.
The predetermined overhead rate used to apply overhead to finished jobs is determined before the period begins.
The predetermined factory overhead rate is the cost associated with all products produced by the company. This helps the company easily assign cost.
Predetermined overhead rate based on direct labor cost = Budgeted overhead cost / direct labor cost / 100 Predetermined overhead rate based on direct labor cost = budgeted overhead cost / direct labor hours.
RUNOVER
Fixed MOH stands for fixed manufacturing overhead. It includes overhead costs that do not vary with production levels, such as rent on the manufacturing facility or management salaries. Fixed MOH is allocated to products based on predetermined rates or cost drivers.
It is used for operating the deals .
The benefits of using predetermined overhead rates is that budgeting and allocation of cash flows become easier. It also helps the firm to conserve resources to stay within a budget.
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Production overhead are overhead items necessary to produce your product or service, such as the square footage necessary to house your production equipment and area. Non-production overhead will include items not directly related to production, such as advertising & garbage collection, for example.