How to Calculate Predetermined Overhead Rate: Formula & Uses
To keep this from being an issue, base the estimates on recent actual history, adjusted for your best estimate of production activity in the near future. Because the predetermined overhead rate is based on estimates, calculating it with incomplete or inaccurate data can also skew the budgets, reports, and forecasts created using it. It’s a simple step where budgeted/estimated cost is divided with the level of activity calculated in the third stage. It’s called predetermined because both of the figures…