Q1RQ - Horngren'S Financial And Managerial Accounting

Question

What is the formula to compute the predetermined overhead allocation rate?

Step-by-Step Solution

Answer

$\text{Predetermined\hspace{0.17em}Overhead\hspace{0.17em}allocation}=\frac{\text{Total\hspace{0.17em}estimated\hspace{0.17em}overhead\hspace{0.17em}expenses}}{\text{Total\hspace{0.17em}estimated\hspace{0.17em}quantity\hspace{0.17em}of\hspace{0.17em}the\hspace{0.17em}overhead\hspace{0.17em}allocation\hspace{0.17em}base}}$

Step 1: Meaning of Overhead Cost

Indirect material, indirect labor, and other operational costs are alluded to as "overhead costs" since they are included within the standard day-to-day operations of the firm but cannot be flawlessly credited to any specific good, service, or cost center.

Step 2: Formula to compute the predetermined overhead allocation rate

Total expected overhead expenses are divided by the total estimated quantity of the overhead allocation base is the formula to calculate the predetermined overhead allocation rate.