<Table> <Tr> <Td> </Td> <Td> This article is an orphan, as no other articles link to it . Please introduce links to this page from related articles; try the Find link tool for suggestions . (February 2009) </Td> </Tr> </Table> <Tr> <Td> </Td> <Td> This article is an orphan, as no other articles link to it . Please introduce links to this page from related articles; try the Find link tool for suggestions . (February 2009) </Td> </Tr> <P> A pre-determined overhead rate is the rate used to apply manufacturing overhead to work - in - process inventory . The pre-determined overhead rate is calculated before the period begins . The first step is to estimate the amount of the activity base that will be required to support operations in the upcoming period . The second step is to estimate the total manufacturing cost at that level of activity . The third step is to compute the predetermined overhead rate by dividing the estimated total manufacturing overhead costs by the estimated total amount of cost driver or activity base . Common activity bases used in the calculation include direct labor costs, direct labor hours, or machine hours . </P> <P> This is related to an activity rate which is a similar calculation used in Activity - based costing . A pre-determined overhead rate is normally the term when using a single, plant - wide base to calculate and apply overhead . Overhead is then applied by multiplying the pre-determined overhead rate by the actual driver units . Any difference between applied overhead and the amount of overhead actually incurred is called over - or under - applied overhead . </P>

When is the predetermined manufacturing overhead rate computed