When Raw Materials, Work in Process, and Finished Goods are recorded and carried at their standard cost, the fixed overhead applied to work in process is calculated by multiplying the predetermined overhead rate by the actual direct labor-hours worked.

Fixed Overhead Applied

The portion of the estimated fixed overhead costs charged to production over a specific period based on a predetermined rate.

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to products, based on a planned level of activity or volume.

Direct Labor-Hours

The total hours of labor directly involved in manufacturing a product or providing a service.