1. What is Factory Overhead Calculation?

Factory overhead calculation determines the indirect manufacturing costs applied to products based on a predetermined overhead rate and actual activity level. It helps in accurate product costing and financial planning.

2. How Does the Calculator Work?

The calculator uses the factory overhead formula:

Where:

• \( \text{predetermined rate} \) — Estimated overhead cost per unit ($/unit)
• \( \text{activity} \) — Actual number of units produced or activity measure
• \( \text{overhead} \) — Applied factory overhead cost ($)

Explanation: This calculation applies predetermined overhead rates to actual production activity to determine the overhead costs that should be allocated to products.

3. Importance of Overhead Calculation

Details: Accurate overhead calculation is crucial for proper product costing, inventory valuation, profitability analysis, and making informed pricing decisions.

4. Using the Calculator

Tips: Enter the predetermined overhead rate in dollars per unit and the activity level in units. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a predetermined overhead rate?
A: A predetermined overhead rate is an estimated rate used to apply manufacturing overhead to products or job orders, calculated at the beginning of an accounting period.

Q2: How is the predetermined rate determined?
A: The predetermined rate is calculated by dividing estimated total overhead costs by estimated total activity units for the period.

Q3: What types of costs are included in factory overhead?
A: Factory overhead includes indirect manufacturing costs such as factory rent, utilities, indirect labor, equipment depreciation, and maintenance costs.

Q4: Why use predetermined rates instead of actual overhead?
A: Predetermined rates allow for timely cost allocation throughout the period rather than waiting until actual overhead costs are known at period end.

Q5: What if actual overhead differs from applied overhead?
A: Differences between actual and applied overhead result in overapplied or underapplied overhead, which is adjusted at the end of the accounting period.