A predetermined overhead application rate is?

Answer 1

Every business has built in overhead. That is the physical building the business operates in, accountants to keep the books and generate payroll, lights for the building etc. These cost are added and a given rate is charged to the manufacturing process to cover this overhead. The rate depends upon a number of factors including the specific industry. For addtiional inforamtion consult your cost accounting book.

Answer 2

Material, labor and FOH factory overheads have specific application rates for each division as the product flows through each division before being inventoried. It depends on what the Managerial Accountant fixes for each division of the factory or the production process. For example a GM car may be manufactured say engine in Dearborn, Body in Kalamazoo and Electricals in Indiana and transmissions in Detroit. So each division before the assembly has the overhead applied as per prorated which is divided by the number passing through each division.