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1- How is calculated the estimated rate of allocation of overhead? 2- How is calculated the...

1- How is calculated the estimated rate of allocation of overhead?

2- How is calculated the actual rate of allocation of overhead?

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Answer #1

In costing, Different kind of Overhead are allocated on the basis of their direct cost. For example: Labour overhead can be allocated either on basis of labour hours or cost of direct labour.Machine Overheads can be allocated on the basis of Machine Hours.

Total cost is called Cost Pool.

and the base on which cost is divided is called Cost Driver.

1. Calculation of Estimated Rate:

Estimated rate depends on Budgeted overheads.Allocation Overhead can be calculated as:

Budgeted overheads/Base of Overheads= Alloaction rate

2.Calculation of Actual Rate:

Actual Overheads/Actual base of overheads = Actual Allocation Rate

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