How Do You Calculate The Predetermined Overhead Rate?
In order to make a profit when running a business, you will need to determine what fees to charge. This is true whether you are providing services or selling products. One of the ways to determine fees is to allocate overhead costs to each product or service, on top of the actual material and labor cost. You calculate overhead rates for each product or service that your company provides. Here’s how you calculate the predetermined overhead rate. Gather all of your forecast expense and production data for the next 12-month period. If you are using actual expense and production information from the current year, you will need to make adjustments. Take into consideration increases or decreases in order quantities, new parts to be produced, wage increases and inflation on current expenses. The overhead rate includes all indirect expenses. Some examples are depreciation on buildings, equipment, taxes, insurance, advertising, administrative wages and anything else not directly related to prod
