Question

LO 5.5How are predetermined overhead rates used in process costing?

Answer 1

Predetermined overhead rates are calculated at the inception of an accounting period. The rates are obtained by dividing the value of the estimated production overhead by the activity base (also estimated). The value gotten from this formula represent the predetermined overhead rate, which is further applied in the manufacturing process to help in determining the standard cost for a product.

Step-by-step explanation:

Answer 2

Answer and explanation:

Predetermined overhead rate is used to add the overhead output to goods or job orders and is typically calculated by dividing the average overhead cost of manufacturing by allocation basis at the beginning of each business cycle. Labor hours and machine hours are the usual allocation basis for these calculations.