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Predetermined overhead rate = estimated MOH cost / estimated total unites in allocation base. It usually could be single OH rate or Plant-wide OH rate. You will use the predetermined OH rate multiply by actual units in allocation base to get the"applied OH cost". Total Product cost = actual DM+ actual DL + Applied OH. At the closing date, you then will get actual OH cost and do the adjustment. If applied overhead > actual overhead --> Overapplied overhead, you have to subtract OH variance from COGS.
Activity-based rate is one of predetermined OH rate, but use activity as allocation base. First, you have to identify each activity and its cost driver. For example, in manufacturing industry, setting up machine is one activity, and its cost driver is #of set-ups; assembling products is another activity, and its cost driver is #of DL hours. And then, you have to allocate total estimated OH cost to different activities. After that, you use the formula, Activity rate = estimated OH cost allocate to activity / estimated cost driver activity, to calculate activity based OH rate.
AB rate is one kind of predetermined OH rate, just from plant-wide to each activity.
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