About the Overhead Rate Calculator
This overhead rate calculator works out how much indirect cost — rent, utilities, supervision, insurance, equipment depreciation — to attach to each unit of work. Choose an allocation base (direct labor hours, machine hours, direct labor cost or total direct cost), enter your overhead budget and the base total, and it returns the predetermined overhead rate.
Manufacturers, contractors, agencies and service firms use the rate to price jobs, build quotes and value inventory. Enter the base used by a single job and its direct costs to see the overhead applied and the fully loaded job cost.
Choose the base that best drives your overhead: machine hours for automated production, labor hours or labor cost for labor-intensive work. For a predetermined rate, use budgeted figures for the coming year; for an actual rate, use last period’s results.
With the default inputs, the overhead rate (per unit of base) is 20. Change any value above to recalculate instantly.
How to use the overhead rate calculator
- 1Add up indirect costs for the period (budgeted for a predetermined rate).
- 2Choose the allocation base that best drives those costs.
- 3Enter the total hours or direct-cost dollars for the same period.
- 4Enter the base a single job uses and its direct costs.
- 5Read the overhead rate and the fully loaded job cost.
Formula and method
The overhead rate spreads indirect costs across the activity that causes them. Divide total overhead for the period by the total amount of the allocation base — labor hours, machine hours or direct cost dollars — for the same period. With an hours base the rate is dollars per hour; with a cost base it is a percentage of direct cost.
To cost a job, multiply the rate by the base the job uses and add the job’s direct labor and materials. A predetermined rate uses budgeted overhead and activity set before the year starts; differences from actual results show up as over- or under-applied overhead.
- Total overhead
- Indirect costs for the period
- Allocation base
- Labor hours, machine hours, labor cost or direct cost
- Base used by job
- Amount of the base a specific job consumes
Worked examples
$240,000 overhead over 12,000 labor hours
Dividing $240,000 of overhead by 12,000 direct labor hours gives $20 of overhead per hour. A 40-hour job picks up $800 of overhead, so with $3,000 of direct costs it really costs $3,800.
Overhead as a percentage of labor cost
$240,000 of overhead against $400,000 of direct labor is a 60% rate. A job with $2,000 of direct labor gets $1,200 of overhead, taking its $5,000 of direct costs to $6,200.
Machine-hour rate for a CNC shop
$900,000 of overhead over 15,000 machine hours is $60 per machine hour. A 6-hour run absorbs $360, so a part with $450 of direct costs has a full cost of $810, 44% of which is overhead.
Frequently asked questions
What is a predetermined overhead rate?+
It is an overhead rate set before the period begins, using budgeted overhead divided by budgeted activity such as labor or machine hours. It lets you cost jobs as they happen instead of waiting for actual totals.
Which allocation base should I use?+
Use the activity that most drives your overhead. Automated factories usually use machine hours; labor-intensive services use labor hours or labor cost. Businesses with very different products may need activity-based costing.
What is a good overhead rate?+
There is no universal benchmark — it depends on industry and how costs are classified. What matters is that prices cover direct costs plus overhead plus profit, and that you recalculate the rate when overhead or activity levels change.
What happens if overhead is over- or under-applied?+
If actual overhead differs from the amount applied with the predetermined rate, the difference is usually closed to cost of goods sold at period end, or prorated across inventory and COGS if it is large.
Is overhead the same as indirect costs?+
Yes, in most contexts. Overhead is every cost that cannot be traced directly to a specific product or job, such as rent, utilities, supervision, insurance and depreciation.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.