{
  "id": "overhead-rate",
  "version": "70e28abec612",
  "status": "published",
  "name": "Overhead Rate Calculator",
  "question": "What is my overhead rate?",
  "summary": "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.",
  "category": "finance",
  "subcategory": "business",
  "url": "https://www.acalculator.org/finance/overhead-rate-calculator",
  "markdown": "https://www.acalculator.org/finance/overhead-rate-calculator.md",
  "kind": "function",
  "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.",
  "assumptions": [
    "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."
  ],
  "inputs": {
    "$schema": "https://json-schema.org/draft/2020-12/schema",
    "type": "object",
    "properties": {
      "overhead": {
        "title": "Overhead costs",
        "description": "Indirect costs for the period: indirect labor and materials, utilities, rent, insurance, depreciation.",
        "type": "number",
        "x-unit": "USD",
        "minimum": 0,
        "maximum": 1000000000000000
      },
      "basis": {
        "title": "Allocation base",
        "description": "What the overhead is spread over: a cost in dollars, hours, or units made.",
        "type": "string",
        "enum": [
          "labor-cost",
          "labor-hours",
          "machine-hours",
          "units",
          "sales"
        ]
      },
      "base": {
        "title": "Allocation base for the period",
        "description": "The expected (or actual) amount of the base for the same period: dollars, hours or units.",
        "type": "number",
        "exclusiveMinimum": 0,
        "maximum": 1000000000000000
      },
      "job": {
        "title": "Base used by one job",
        "description": "Optional: the dollars, hours or units of the base one job or product used, to apply overhead to it.",
        "type": "number",
        "minimum": 0,
        "maximum": 1000000000000000
      }
    }
  },
  "outputs": {
    "rate": {
      "label": "Overhead rate ($ per unit of the base)",
      "description": "Overhead ÷ allocation base: dollars of overhead for each dollar, hour or unit of the base.",
      "format": "number"
    },
    "percent": {
      "label": "Overhead rate as a percent",
      "description": "Overhead ÷ allocation base × 100, for a base in dollars (direct labor cost or sales).",
      "format": "percent"
    },
    "applied": {
      "label": "Overhead applied to the job",
      "description": "Overhead rate × the base the job used.",
      "format": "money"
    }
  },
  "defaultAnswer": {
    "inputs": {
      "overhead": 250000,
      "basis": "labor-cost",
      "base": 100000
    },
    "outputs": {
      "rate": 2.5,
      "percent": 250
    },
    "text": "Overhead of $250,000.00 over an allocation base of 100,000 (Direct labor cost) gives an overhead rate of $2.50."
  },
  "examples": [
    {
      "given": {
        "overhead": 250000,
        "basis": "labor-cost",
        "base": 100000,
        "job": 66
      },
      "expect": {
        "rate": 2.5,
        "percent": 250,
        "applied": 165
      },
      "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; 66 × 2.50 = 165"
    },
    {
      "given": {
        "overhead": 400000,
        "basis": "labor-cost",
        "base": 200000
      },
      "expect": {
        "rate": 2,
        "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"
    },
    {
      "given": {
        "overhead": 250000,
        "basis": "machine-hours",
        "base": 12500,
        "job": 18
      },
      "expect": {
        "rate": 20,
        "applied": 360
      },
      "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); hand calculation in content.mdx: 250,000 ÷ 12,500 = 20; 18 × 20 = 360"
    },
    {
      "given": {
        "overhead": 85000,
        "basis": "sales",
        "base": 340000
      },
      "expect": {
        "rate": 0.25,
        "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); hand calculation in content.mdx: 85,000 ÷ 340,000 = 0.25 = 25%"
    },
    {
      "given": {
        "overhead": 100000,
        "basis": "labor-hours",
        "base": 3000,
        "job": 7.5
      },
      "expect": {
        "rate": 33.333333333333336,
        "applied": 250
      },
      "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; hand calculation in content.mdx: 100,000 ÷ 3,000 = 33.33… (exact 100/3, Python Fraction); 7.5 × 100/3 = 250"
    }
  ],
  "sources": [
    "OpenStax, Principles of Managerial Accounting, 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production: estimated (budgeted) overhead cost ÷ expected (budgeted) level of activity = predetermined overhead rate; direct labor hours, direct labor dollars or machine hours are often chosen as the allocation base; Dinosaur Vinyl's $250,000 of estimated overhead (indirect labor $5,000, indirect materials $20,000, utilities $75,000, depreciation $90,000, insurance $35,000, interest $25,000) ÷ $100,000 of direct labor = $2.50 per direct labor dollar; job MAC001: $66 × $2.50 = $165. https://openstax.org/books/principles-managerial-accounting/pages/4-4-compute-a-predetermined-overhead-rate-and-apply-overhead-to-production (retrieved 2026-10-19)",
    "OpenStax, Principles of Managerial Accounting, 4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing: costs that support production but are not direct materials or direct labor are overhead; the most common cost drivers are direct labor in dollars, direct labor in hours and machine hours; estimated annual overhead costs ÷ expected annual activity = overhead allocation rate; a bakery with $400,000 of overhead and $200,000 of direct labor applies $2.00 of overhead for each $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 (retrieved 2026-10-19)"
  ],
  "related": [
    "cogm",
    "variable-cost",
    "break-even",
    "gross-margin"
  ],
  "changelog": []
}