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What is the need of POHR (Pre-determined overhead rate)?

What is the need of POHR (Pre-determined overhead rate)?

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Answer #1

An overhead rate or predetermined overhead rate is an equation that allocates a certain amount of manufacturing overhead to each direct labor or machine hour. This predetermined overhead rate helps the businesses allocate resources and set pricing of the product. This helps to estimate how much cost will be applied to products and can estimate the profit during the period.

Predetermined overhead rate is the quotient of the estimated total manufacturing overhead cost for the coming period divided by the total labor hours or machine hour for the coming period. The main advantage is that it helps to calculate the total cost per unit. So by using this, the company can set the selling price of the unit.

SUMMARY:

It is one of the rate that is used by company to set the selling price and to estimate the total cost of unit.

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