Accounting › Section R · Job order and process costing › Topic R.3
Predetermined overhead rates
Materials and labour can be traced to each job, but the factory's power bill and the supervisor's salary cannot. A predetermined overhead rate, set before the year begins, lets every job carry a fair share of overhead as it is made.
In this topic
- Why overhead needs a rate
- Why not use each month's actual rate?
- The formula
- Estimating the overhead
- Choosing the allocation base
- Worked example: one budget, three rates
- Applying overhead to jobs
- Worked example: a machine-heavy plant
- One rate or several
- Common mistakes to avoid
- Key takeaways
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