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In: Accounting

The predetermined overhead rate (POHR), which is used to apply overhead to jobs, is a four...

The predetermined overhead rate (POHR), which is used to apply overhead to jobs, is a four step process and is based on estimates..

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Expert Solution

Predermined Overhead Rate=Estimated Overhead/Allocation base

Four steps Predermined Overhead rate:

1) Estimated the overhead for the production period. These budgeted estimated helps to plan the future manufacturing cost.

2) Choose or select the appropriate allocation base. These allocation base may be Direct Labor, Direct Labor cost, Machine Hour etc.

3) Choose the cost driver for the production period.

4) Uset the Formula for predermined overhead, divide the Overhead with the Cost Driver. Cost Driver may be Direct Labor, direct Labor cost ,Machine Hours etc.

For Example:

ABC Company

Direct Mateial

5000

Direct Labor

6000

Store Manager Salaries

3000

Factory Rent

5000

Depreciation on Machinery used in factory

2000

Direct Labor Hours

5000

1) Estimated the Overhead Cost=Stores Manager Salaries+Factory Rent+Depreciation=($3000+$2000+$5000)=$10000

2) Allocation Base given=Direct Labor Hours

3) Direct Labor Hours=5000

4) $10000/5000=2 per direct labor hour

ekkarill92 answered 2 years ago
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