MAJob, Batch & Service Costing

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Here's the explanation. If POH were to be a % of Direct Wages, then we'll have to first calculate the Budgeted POH % of Budgeted Direct Wages. i.e. POH % = Budgeted POH/Budgeted Direct Wages We have Budgeted Direct Wages but Budgeted POH is missing. For this, we can use the actual data. POH = $4,000 for 400 hours So, Budgeted POH/hr = $10 And Budgeted POH = $10 x 45,000 hrs = $450,000 POH % = $450,000/$180,000 = 250% Actual Direct Wages = $2,500 (incl. premium) Production Overheads = $2,500*250% = $6,250 Total Cost = $2,000 + $2,500 + $6,250 = $10,750

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why do we have to calculate percentage for budged POH?