Respuesta :
Applying overhead cost to Work in Process using a predetermined overhead rate is explained below.
A predetermined overhead rate is used to apply manufacturing overhead to products or job orders.
It is typically calculated at the start of every period by dividing the estimated manufacturing overhead cost from an allocation base (also known as activity base or activity driver).
Direct labor hours, direct labor dollars, machine hours, as well as direct materials costs incurred by the process, are common allocation bases.
The predetermined overhead rate can be calculated by dividing the estimated (or budgeted) manufacturing overhead cost at the start of the period by the estimated units in the allocation base.
The following formula can be written as:
Estimated manufacturing overhead cost / Estimated total units in the allocation base = predetermined overhead rate
The predetermined overhead rate formula is totally based on estimates.
As a result, the overhead attributed to products or job orders would differ from the real overhead incurred by jobs or products.
The difference between applied and actual overhead gives us the amount of over or under-applied overhead that was eliminated during the period by recording appropriate journal entries at the end of the period.
This process has been demonstrated here.
"Disposition of over or under-applied overhead" refers to the elimination of the differential between applied overhead and actual overhead.
Hence, applying overhead cost to Work in Process using a predetermined overhead rate is explained above.
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