Chapter 19, Problem S19.8SE

To determine

Pre-determined Overhead rate:

The Overheads are indirect cost not directly identified and assigned to products and therefore, these indirect cost are absorbed in the product costing on an estimated pre-determined basis. Such pre-determined Overhead rate is computed on the basis of estimated overheads of the period and estimated activity for the respective period (that may be unit produced or unit sold or direct labor hours or machine hours, depending upon the decision of the management based on their production process).

The pre-determined Overhead rate is computed by dividing the estimated overheads by the estimated activity level of the respective period, which may be used for the absorption of overheads in the actual production of goods based on actual activity undertaken for such production.

The Pre-determined OH rate based on direct labor hours and Journal entry for allocating the overheads.