Essays on The Purpose of Predetermined Overhead Rate Assignment

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The paper "The Purpose of Predetermined Overhead Rate" is a great example of an assignment on finance and accounting. To estimate the number of temporary workers required, we use regression analysis equation which isY= a+bxWhere X is the total number of orders for the monthY is the number of workers requiredUsing regression 1,X = 12,740a= 21.938b = 0.0043Hence: Y= 21.938+ 0.0043(12,740)Y= 21.938 +54.782Y =76.72 WorkersHence, the company would need a total of 77 workers for the month of July according to regression 1However, the company employs 60 permanent workers. Hence, Temporary workers = 77-60 = 17Hence, the company would need to employ 17 temporary workersUsing Regression 2a = -46.569b = 0.0051X = 12,740Thus: Y = -46.569+ 0.0051(12,740)Y= -46.569+64.974Y = 18.45Hence, the company would need to employ 18 temporary workers during the period. Thought the two equations give a differing number of temporary workers at 17 and 18, I think that Michael Fowler would be better off relying on equation 2 since it gives the exact number of temporary workers the company would need without having to reconstitute again.

Equation 1 gives the total number of employees the company would need and hence it is not the best equation for computing the number of temporary workers required.

Thus, the correct number of temporary workers required is 18.2. The purpose of the predetermined overhead rateA predetermined overhead rate is a rate that is used in applying manufacturing overheads. The purpose of a predetermined overhead rate is to help the company applying manufacturing overhead to products or job orders. The predetermined overhead rate is computed by dividing the estimated manufacturing overhead cost by an allocation base or activity driver.

The most commonly used allocation bases include direct labor dollars, direct labor hours, machine hours as well as direct materials. The formula for calculating the predetermined overhead rate is as follows; Predetermined overhead rate = Estimated manufacturing overhead costEstimated total units in the allocation baseCompanies use predetermined overhead rates for a number of reasons including; Companies often use job costing when manufacturing differing products. As such, companies would use a predetermined overhead rate in fulfilling GAAP’ s matching principal by way of assigning overhead costs while products are still in production.

This provides companies with a way of calculating an average cost per unit when costs differ owing to the fact that the products being manufactured are different.

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