A predetermined overhead price is a price that’s used to allocate overhead prices to services or products. It’s calculated by dividing the overall estimated overhead prices for a interval by the overall estimated exercise base for that interval. The exercise base is usually a measure of the extent of exercise that may trigger the overhead prices to be incurred. For instance, if an organization expects to incur $100,000 in overhead prices and produce 10,000 models of product, the predetermined overhead price can be $10 per unit.
Predetermined overhead charges are used to use overhead prices to services or products in a constant and predictable method. This can assist to make sure that the prices of manufacturing are precisely mirrored within the costs of the services or products. Predetermined overhead charges will also be used to make budgeting and planning selections.
