Answer
Step 1. Estimate the total amount of the allocation base that is required for the next period's estimated level of production (this is your denominator).
Step 2. Estimate the total fixed manufacturing overhead cost for the coming period and the variable manufacturing overhead cost per unit of the allocation base.
Step3. Use the cost formula Y =a+bX to estimate the total manufacturing overhead cost for the coming period (the numerator).
Step 4. Compute the predetermined overhead role by dividing the numerator by the denominator.
Work Step by Step
COST FORMULA
Y= Estimated total manufacturing overhead cost
a= estimated total fixed manufacturing overhead cost
b=estimated variable manufacturing overhead cost per unit of the allocation base
x=estimated total amount of allocation base
