Question

Which of the following is the correct formula to compute the predetermined overhead rate?Multiple ChoicePredetermined overhead rate = Estimated total units in the allocation base ÷ Estimated total manufacturing overhead costs Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Estimated total units in the allocation base CorrectPredetermined overhead rate = Actual total manufacturing overhead costs ÷ Estimated total units in the allocation base IncorrectPredetermined overhead rate = Estimated total manufacturing overhead costs ÷ Actual total units in the allocation base.

Answer 1

Answer: The correct formula to compute the predetermined overhead rate is  Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Estimated total units in the allocation base.

Explanation:  

For example:

Estimated total manufacturing overhead costs = 5000000

Estimated total units in the allocation base = 60000

Total real units produced = 30000

So, Predetermined overhead rate = 5000000 ÷ 60000 = 83.33

Real overhead cost = Predetermined overhead rate × Total real units produced.

So Real overhead cost = 83.33 × 30000 = 2499900.