acalculator

What is my overhead rate?

Enter your overhead (indirect) costs for the period and the allocation base you spread them over, such as direct labor cost, labor hours or machine hours. The calculator gives the overhead rate and, for one job, the overhead to add to its cost.

Your numbers

Overhead rate ($ per unit of the base)
2.50

Overhead of $250,000.00 over an allocation base of 100,000 (Direct labor cost) gives an overhead rate of $2.50.

Overhead rate as a percent
250%

Overhead rate ($ per unit of the base): 2.50. Overhead of $250,000.00 over an allocation base of 100,000 (Direct labor cost) gives an overhead rate of $2.50.

The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use

How to calculate

Computes the overhead rate (predetermined overhead rate): overhead costs divided by an allocation base such as direct labor cost, labor hours or machine hours, and the overhead applied to a job.

Example with the default inputs (Overhead costs $250,000.00, Allocation base Direct labor cost, Allocation base for the period 100,000): Overhead of $250,000.00 over an allocation base of 100,000 (Direct labor cost) gives an overhead rate of $2.50.

Method: Overhead rate = overhead costs ÷ allocation base; as a percent for a dollar base, × 100; overhead applied to a job = overhead rate × the base the job used.

  • The overhead and the allocation base are for the same period, usually estimates for the year ahead (a predetermined rate).
  • The base is one activity that drives overhead, such as direct labor cost, direct labor hours, machine hours, units produced or sales.
  • Arithmetic is exact on the typed decimals; the rate shows to 2 to 4 decimals, percents to 2 decimals and money to the cent, halves up.

Machine-readable copies: Markdown, JSON.

Worked examples

Each example is checked against the calculator on every build.

  1. Overhead costs $250,000.00, Allocation base Direct labor cost, Allocation base for the period 100,000, Base used by one job 66 gives Overhead rate ($ per unit of the base) 2.50, Overhead rate as a percent 250%, Overhead applied to the job $165.00.Source: OpenStax, Principles of Managerial Accounting, 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production (estimated overhead ÷ expected level of activity = predetermined overhead rate; Dinosaur Vinyl: $250,000 ÷ $100,000 of direct labor = $2.50 per direct labor dollar; job MAC001: $66 of direct labor × $2.50 = $165). https://openstax.org/books/principles-managerial-accounting/pages/4-4-compute-a-predetermined-overhead-rate-and-apply-overhead-to-production: 250,000 ÷ 100,000 = 2.50
  2. Overhead costs $400,000.00, Allocation base Direct labor cost, Allocation base for the period 200,000 gives Overhead rate ($ per unit of the base) 2.00, Overhead rate as a percent 200%.Source: OpenStax, Principles of Managerial Accounting, 4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing (a bakery: $400,000 of estimated overhead ÷ $200,000 of direct labor = $2.00 of overhead per $1.00 of direct labor). https://openstax.org/books/principles-managerial-accounting/pages/4-2-describe-and-identify-the-three-major-components-of-product-costs-under-job-order-costing: 400,000 ÷ 200,000 = 2.00
  3. Overhead costs $250,000.00, Allocation base Machine hours, Allocation base for the period 12,500, Base used by one job 18 gives Overhead rate ($ per unit of the base) 20.00, Overhead applied to the job $360.00.Source: OpenStax, Principles of Managerial Accounting, 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production (estimated overhead ÷ expected level of activity = predetermined overhead rate; Dinosaur Vinyl: $250,000 ÷ $100,000 of direct labor = $2.50 per direct labor dollar; job MAC001: $66 of direct labor × $2.50 = $165). https://openstax.org/books/principles-managerial-accounting/pages/4-4-compute-a-predetermined-overhead-rate-and-apply-overhead-to-production (machine hours as the base)
  4. Overhead costs $85,000.00, Allocation base Sales, Allocation base for the period 340,000 gives Overhead rate ($ per unit of the base) 0.25, Overhead rate as a percent 25%.Source: OpenStax, Principles of Managerial Accounting, 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production (estimated overhead ÷ expected level of activity = predetermined overhead rate; Dinosaur Vinyl: $250,000 ÷ $100,000 of direct labor = $2.50 per direct labor dollar; job MAC001: $66 of direct labor × $2.50 = $165). https://openstax.org/books/principles-managerial-accounting/pages/4-4-compute-a-predetermined-overhead-rate-and-apply-overhead-to-production (the rate formula, with sales as the base)
  5. Overhead costs $100,000.00, Allocation base Direct labor hours, Allocation base for the period 3,000, Base used by one job 7.5 gives Overhead rate ($ per unit of the base) 33.3333, Overhead applied to the job $250.00.Source: OpenStax, Principles of Managerial Accounting, 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production (estimated overhead ÷ expected level of activity = predetermined overhead rate; Dinosaur Vinyl: $250,000 ÷ $100,000 of direct labor = $2.50 per direct labor dollar; job MAC001: $66 of direct labor × $2.50 = $165). https://openstax.org/books/principles-managerial-accounting/pages/4-4-compute-a-predetermined-overhead-rate-and-apply-overhead-to-production

How it works

  • Overhead rate = overhead costs ÷ allocation base
  • Overhead rate as a percent = overhead costs ÷ allocation base × 100, shown when the base is in dollars (direct labor cost or sales)
  • Overhead applied to a job = overhead rate × the base the job used

The rate is in dollars of overhead for each unit of the base: each dollar of direct labor or sales, each direct labor or machine hour, or each unit produced.

Rules:

  • The overhead is $0 or more, the allocation base more than 0, and the base one job used 0 or more; each is at most 1 quadrillion. The job's base may be left empty, and then no applied overhead shows.
  • A result too large to show as a number, or not 0 but too small to show, gives no answer with "The overhead rate is too large to show as a number." or "The overhead rate is too small to show as a number.", and the same with "The overhead rate as a percent" or "The overhead applied" in place of "The overhead rate". They are checked in that order: rate, percent, applied.
  • The arithmetic is exact on the decimals you type. The rate shows with 2 to 4 decimals, the percent to 2 decimals and money to the cent, with halves rounded up (away from 0).

Assumptions

  • The overhead and the base are for the same period, usually the estimates for the year ahead (a predetermined rate).
  • One base drives the overhead. A plant with several cost pools uses a rate for each.

Worked examples by hand

Dinosaur Vinyl. Estimated overhead $250,000 over $100,000 of direct labor: rate = 250,000 ÷ 100,000 = $2.50 per direct labor dollar, or 250%. Job MAC001 used $66 of direct labor: 66 × 2.50 = $165 of overhead.

A bakery. $400,000 of overhead over $200,000 of direct labor: rate = $2.00 per direct labor dollar (200%).

Machine hours. $250,000 of overhead over 12,500 machine hours: rate = 250,000 ÷ 12,500 = $20 per machine hour. A job of 18 machine hours gets 18 × 20 = $360.

Overhead as a percent of sales. $85,000 of overhead on $340,000 of sales: 85,000 ÷ 340,000 = $0.25 per sales dollar, or 25%.

Labor hours. $100,000 of overhead over 3,000 direct labor hours: rate = 33.333…, shown as $33.3333 per hour. A job of 7.5 hours gets 7.5 × 100,000 ÷ 3,000 = $250.

Other questions people ask

What is an overhead rate?

An overhead rate spreads indirect costs, the costs you cannot trace to one product or job, over a measure of activity called the allocation base. It says how many dollars of overhead go with each dollar of direct labor, each labor or machine hour, or each unit.

How do I calculate the overhead rate?

Divide the overhead costs by the allocation base for the same period. Dinosaur Vinyl, the OpenStax example, expects $250,000 of overhead and $100,000 of direct labor, so its rate is 250,000 ÷ 100,000 = $2.50 of overhead for each $1 of direct labor (250%).

How do I apply overhead to a job?

Multiply the overhead rate by the amount of the base the job used. Job MAC001 used $66 of direct labor, so at $2.50 per labor dollar it gets 66 × 2.50 = $165 of overhead, on top of its direct materials and labor.

Which allocation base should I use?

Pick the activity that drives most of your overhead, so each job gets a fair share. The most common bases are direct labor cost, direct labor hours and machine hours. Units produced or the materials used can also serve as a base.

What costs count as overhead?

Manufacturing overhead is every production cost other than direct materials and direct labor. Dinosaur Vinyl's estimate lists indirect labor ($5,000), indirect materials ($20,000), utilities ($75,000), depreciation ($90,000), insurance ($35,000) and interest ($25,000): $250,000 in all.

How do I calculate overhead as a percent of sales?

Choose Sales as the base and enter the sales for the same period. $85,000 of overhead on $340,000 of sales is 85,000 ÷ 340,000 = 0.25, or 25% of sales.

Why use estimated overhead?

Many overhead costs, such as utilities, arrive through the year, but a job needs a cost when it is done. A predetermined rate from the year’s estimates lets you apply overhead as jobs finish. The gap between applied and actual overhead is settled at year end as underapplied or overapplied overhead.