[jimboace88]

Question on the formula for calculating the predetermined overhead rate….

I had a Wiley MC tell me that the formula is “Estimated variable overhead costs/Estimated activity level.”

However, in a later question, the only way for me to come out with the right answer was to use:

Estimated TOTAL overhead/Estimated activity level.

Which is the right formula to use if I have to calculate a predetermined overhead rate in order to apply manufacturing overhead?

Thanks!

FAR 07/27/11 - 87
AUD 10/01/11 - 85
BEC 11/15/11 - 87
REG 01/03/12 - 92

[Anonymous]

I was just studying this tonight. Here's my understanding of this topic….To come up with the predetermined rates:

Step 1- Group OH costs by cost behavior. i.e. variable vs. fixed.

Step 2- Identify your estimated costs for each category and determine what base you'll use in the denominator.

Step 3- Calculate predetermined variable overhead rate- Estimated variable overhead costs/Estimated actual activity level.

Step 4: Calculate predetermined fixed overhead rate- Estimated fixed overhead costs/Normal activity level (SFAS 151 requires use of “normal production levels” for allocating fixed OH to inventory)

So, it seems that the formula depends on whether you're calculating fixed or variable OH.

[Author]

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