Which of the following is included in the calculation of a predetermined overhead rate?

• A. Cost of goods sold at the end of the period
• B. Actual direct labor hours worked during the period
• C. Actual direct materials used during the period
• D. Estimated total manufacturing overhead costs for the period

Answer: (D)

Verified step by step guidance

1. Understand the concept of a predetermined overhead rate: It is a rate used to allocate manufacturing overhead costs to products or jobs based on an estimated measure of activity, such as direct labor hours or machine hours.
2. Recognize that the predetermined overhead rate is calculated before the period begins, using estimated figures rather than actual figures. This is because it helps in budgeting and cost control during the period.
3. Identify the formula for the predetermined overhead rate: \( \text{Predetermined Overhead Rate} = \frac{\text{Estimated Total Manufacturing Overhead Costs}}{\text{Estimated Activity Base}} \). The activity base could be direct labor hours, machine hours, or another relevant measure.
4. Clarify why actual figures (e.g., actual direct labor hours or actual direct materials used) are not included in the calculation: Actual figures are only available after the period ends, whereas the predetermined overhead rate is calculated beforehand to assist in planning and decision-making.
5. Conclude that the correct component for calculating the predetermined overhead rate is the estimated total manufacturing overhead costs for the period, as it is based on projections rather than actual data.