Calculate predetermined overhead rates from manufacturing overhead and allocation units, plus applied overhead, variance, department rates, and ABC rates.
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Predetermined Overhead Rate Formula
The following equation is used to calculate the predetermined overhead rate.
- Where POR is the predetermined overhead rate
- MOC is the estimated manufacturing overhead cost for the budget period
- UA is the estimated quantity of the allocation base for the same budget period (for example, labor hours, machine hours or units).
To calculate a predetermined overhead rate before the period, divide estimated manufacturing overhead cost by the estimated quantity of the allocation base for that same period. Apply the rate to actual job activity to calculate applied overhead.
Predetermined Overhead Rate Definition
A predetermined overhead rate is the ratio of estimated manufacturing overhead cost to the estimated allocation-base quantity for a specified budget period. Departmental and activity-based rates use the budget and driver quantity for each department or activity pool.
Predetermined Overhead Rate Example
How to calculate predetermined overhead rate?
- First, determine the manufacturing overhead cost.
Estimate total manufacturing overhead cost for the budget period.
- Next, determine the units of allocation.
Estimate the allocation-base quantity for that same budget period.
- Finally, calculate the POR.
Calculate the predetermined overhead rate using the equation above.
