Divide the total manufacturing overhead cost by the estimated total units of activity to determine the predetermined overhead rate.
The Predetermined Overhead Rate Calculator helps businesses allocate manufacturing overhead costs to products or jobs based on a consistent rate.
This rate is established at the beginning of a period using estimated overhead costs and activity levels, ensuring streamlined accounting and better cost control. It’s widely used in manufacturing, construction, and service industries for budgeting and pricing.
Formula:
Contents
POR = MOC / UA
| Variable | Description | Unit |
|---|---|---|
| POR | Predetermined overhead rate | Rate per unit of activity |
| MOC | Total estimated manufacturing overhead costs | Currency (e.g., $) |
| UA | Total estimated units of activity (e.g., labor hours, machine hours) | Units (hours, etc.) |
Solved Calculations:
Example 1: Calculating Overhead Rate per Direct Labor Hour
| Step | Value | Explanation |
|---|---|---|
| Manufacturing Overhead Costs (MOC) | $50,000 | Total estimated overhead for the period |
| Units of Activity (UA) | 10,000 hours | Estimated total direct labor hours |
| Apply formula | $50,000 / 10,000 | Divide overhead by labor hours |
| Result | $5/hour | Predetermined overhead rate |
Example 2: Calculating Overhead Rate per Machine Hour
| Step | Value | Explanation |
|---|---|---|
| Manufacturing Overhead Costs (MOC) | $30,000 | Total estimated overhead for the period |
| Units of Activity (UA) | 6,000 hours | Estimated total machine hours |
| Apply formula | $30,000 / 6,000 | Divide overhead by machine hours |
| Result | $5/hour | Predetermined overhead rate |
What is the Predetermined Overhead Rate Calculator?
The Predetermined Overhead Rate Calculator is a valuable tool. It is used in cost accounting to estimate manufacturing overhead costs for a specific period.
This rate, determined at the beginning of an accounting cycle, helps allocate overhead expenses to production jobs based on a predetermined factor like direct labor hours, machine hours, or material costs. By streamlining cost estimations, it aids in accurate budgeting and pricing.
This calculator simplifies the process by requiring just a few inputs, such as total estimated overhead costs and the total estimated base (e.g., labor hours or machine hours).
It then computes the overhead rate, which is essential for businesses looking to control costs and maintain profitability.
The tool is especially useful in manufacturing and production settings, where accurate cost allocation is critical for job costing and financial planning. It ensures that overhead expenses are fairly distributed across jobs or products, aligning costs with resources consumed.
Final Words:
To sum up, the Predetermined Overhead Rate Calculator is an indispensable tool for businesses aiming to allocate costs efficiently and accurately. Its simplicity and precision make it essential for effective financial management and operational planning.
