## How to determine the predetermined overhead rate per direct labor hour

Predetermined Overhead Rate = \$48,000,000 / 150,000 hours; Predetermined Overhead Rate = \$320 per hour; Therefore, the predetermined overhead rate of TYC Ltd for the upcoming year is expected to be \$320 per hour. Predetermined Overhead Rate Formula – Example #2. Let us take the example of ort GHJ Ltd which has prepared the budget for next year.

## Applied predetermined overhead rate helps costing managers compute total that applies estimated labour or machine cost per hour to total # of actual hours in a given Budgeted annual activity hours include direct labour & machine hours.

### It paid \$1,600 in direct labor to its workers and \$400 for overhead, knowing that allocation rate by dividing total overhead by the number of direct labor hours. to the overhead allocation rate as the predetermined overhead allocation rate

\$100,000 Indirect costs ÷ \$50,000 Direct labor = 2:1 Overhead rate. The result is an overhead rate of 2:1, or \$2 of overhead for every \$1 of direct labor cost incurred. Alternatively, if the denominator is not in dollars, then the overhead rate is expressed as a cost per allocation unit.