Question

What is pre-determined overhead rate and how is it calculated? What do you do when the actual overhead for the accounting period is different than applied overhead?

Subject: Management Accounting

Write more than 300 words

Answer 1

Prior to the production process Overhead rate is determined, to allocate the overhead cost to the production process.

A predetermined overhead rate is an expected ratio of overhead costs set up before an accounting period that depend on another variable and used to assign costs amid the generation procedure. At the end of the day, a predetermined rate is an expected measure of overhead costs that managerial accountants compute a movement base will utilize. This rate is then used to assign the overhead costs to the generation procedure in view of the rate and the relating action base.

Predetermined overhead rate = Estimated manufacturing OH cost/ Estimated total units in the allocation base

Allocation base could be direct labour hours

If the OH rate is under applied or over applied

In the event that an excessive amount of overhead has been applied to the occupations, we say that overhead is over applied. On the off chance that too minimal overhead has been applied to the employments, we say that overhead is under applied.

When you have decided whether overhead is under applied or over applied, Calculate the distinction between applied overhead and genuine overhead. This is the sum that you should modify cost of goods sold to convey it to the real cost.

On the off chance that overhead is over applied, which means you have excessively overhead in cost of goods sold, subtract the sum that is over applied.

On the off chance that overhead is under applied, which means you have too little overheard in cost of goods sold, include the sum that is under applied.