Answer
The steps in developing a budgeted fixed overhead rate are as follows:
1. Choose the budget period, typically one year.
2. Select the cost-allocation base, which, in the case of fixed overhead, is often machine-hours.
3. Identify the fixed overhead costs associated with the chosen cost-allocation base and group them into a cost pool.
4. Compute the rate per unit of the cost-allocation base by dividing the budgeted total costs in the fixed overhead pool by the budgeted total quantity of the chosen cost-allocation base.
Work Step by Step
The steps in developing a budgeted fixed overhead rate are as follows:
1. Choose the budget period, typically one year.
2. Select the cost-allocation base, which, in the case of fixed overhead, is often machine-hours.
3. Identify the fixed overhead costs associated with the chosen cost-allocation base and group them into a cost pool.
4. Compute the rate per unit of the cost-allocation base by dividing the budgeted total costs in the fixed overhead pool by the budgeted total quantity of the chosen cost-allocation base.
