Explain how predetermined overhead rates are computed and

why they are used to apply overhead to units of product instead of actual overhead costs

Why do companies use a predetermined overhead rate rather than actual overhead costs to apply
overhead to jobs?

The main reason is that the managers would like to know how the system is doing at a point in time
before the end of the current accounting period in order to be able to figure out how well they are
performing. In addition, seasonal factors and fluctuations are going to throw off the overhead rates if
actual overhead rates are used often. Finally, by using predetermined overhead rates, they are helping
to simplify the process of record keeping.

What factors should be considered when selecting a base to be used in calculating the predetermined
overhead rate?
The "cost driver" is the base that should be used as it is the factor that causes the overhead costs in the
beginning.