When the predetermined overhead rate is based on direct labour-hours, the amount of overhead applied to a job is proportional to the amount of actual direct labour-hours incurred on the job.

Predetermined Overhead Rate

A rate calculated by dividing estimated overhead costs by an allocation base, used to allocate overhead to products or services.

Direct Labour-Hours

The amount of time dedicated by employees for the manufacture of products, directly impacting production costs and efficiency.

Overhead Applied

Overhead applied refers to the allocation of overhead costs to specific jobs or production units based on a predetermined rate or basis.