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michmox · Feb 9, 2010, 04:01 PM

Hi, I'm in cost accounting and I just don't understand how to calculate the predetermined overhead rate if there aren't any allocation base given for the denominator.:confused:

morgaine300 · Feb 12, 2010, 06:48 PM

The only way you could figure out the rate without an allocation base is if you already have the applied amount and can work backwards to get back to the rate, which is more of a test of your math skills than anything.

$\text{Rate\ =\ \frac{estimated\ overhead\ costs}{estimated\ activity\ base} }$

$\text{Applied costs\ =\ rate\ *\ actual "activity\ use"}$

If you had the applied costs and you knew the use, you could work this all backwards. So if it was based, say, on direct labor hours and you have the applied costs and direct labor hours, you could plug in and work backwards to get that rate. If you needed to know anything in the top equation, you could further plug in and work backwards to get that.

That's something that happens in problem on occasion but isn't realistic. If that's not what they have you doing, there isn't any way to get it without that activity base.