1. What is Predetermined Overhead Rate?

The Predetermined Overhead Rate (POHR) is used to allocate manufacturing overhead costs to individual products. It's calculated before the period begins by dividing estimated overhead costs by estimated activity base.

2. How Does the Calculator Work?

The calculator uses the POHR formula:

Where:

• Estimated Overhead — Total estimated manufacturing overhead costs
• Estimated Activity Base — Estimated units of activity (e.g., direct labor hours, machine hours)

Explanation: The rate helps assign overhead costs to products based on their usage of the activity base.

3. Importance of POHR Calculation

Details: POHR is essential for accurate product costing, inventory valuation, and financial reporting in manufacturing environments.

4. Using the Calculator

Tips: Enter estimated overhead costs in your currency and estimated activity base in units. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are common activity bases?
A: Common bases include direct labor hours, machine hours, or direct labor costs.

Q2: Why use predetermined rates instead of actual?
A: Predetermined rates allow for timely cost allocation before actual overhead is known.

Q3: How often should POHR be updated?
A: Typically recalculated annually, or when significant changes occur in production processes.

Q4: What if actual overhead differs from estimated?
A: Differences are handled through overhead variance accounts at period end.

Q5: Can POHR be used for service companies?
A: Yes, service firms can use similar allocation methods for their indirect costs.