Spread indirect costs such as rent, supervision, depreciation and insurance fairly across your work. Total your overhead, choose an allocation base (labor hours, machine hours, labor cost or direct cost) and get the overhead rate, the overhead applied to a job and the job's full cost.
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Overhead costs for the period
$
Supervisors, maintenance, cleaning, shop helpers.
$
$
Equipment, tools and building.
$
$
Supplies, small tools, office, software.
Allocation base
hours
Estimated (budgeted) hours of the chosen base.
$
$
Apply to a job (optional)
$
$
hours
%
Actual results (optional)
$
Shows over- or underapplied overhead.
Actual hours, or actual labor / direct cost in money.
Enter your values to see the result.
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How to use the Overhead Rate Calculator
Enter overhead costs for the period: indirect labor, rent and utilities, depreciation, insurance and other indirect costs.
Choose an allocation base that drives your overhead: labor hours, machine hours, labor cost or total direct cost.
Enter the base total for the same period, usually the budgeted figure.
Add a job's materials, labor and hours to see applied overhead and the full job cost, plus an optional markup.
Optionally enter actual results to see whether overhead was over- or underapplied.
Overhead rate formulas
Overhead rate = estimated total overhead ÷ estimated total allocation base
Per labor hour: overhead ÷ direct labor hours
Per machine hour: overhead ÷ machine hours
% of direct labor cost: overhead ÷ direct labor cost × 100
Applied overhead = overhead rate × the job's actual base (hours or cost)
Total job cost = direct materials + direct labor + applied overhead
Example (default values): overhead of $180,000 ($85,000 indirect labor, $48,000 rent and utilities, $22,000 depreciation, $12,000 insurance, $13,000 other) over 12,000 direct labor hours gives a rate of $15.00 per labor hour. A job with $1,800 of materials, $1,200 of labor and 40 hours receives $600 of overhead, for a total job cost of $3,600.
Choosing an allocation base
Base
Works best when
Typical users
Direct labor hours
Overhead grows with the time people spend on jobs
Machine shops, cabinet makers, repair shops
Machine hours
Equipment, power and maintenance drive most overhead
Automated manufacturing, CNC and injection molding
% of direct labor cost
Wage rates are similar and labor is the main input
Contractors, installers, service firms
% of direct cost
Materials and labor both drive overhead and the product mix is simple
Small producers, print shops, quick estimates
Tips for an accurate rate
Match the periods. Use overhead and base totals for the same time span, normally a full budget year, so seasonal swings even out.
Use practical capacity. Basing the rate on unrealistically high hours understates overhead per job and leads to underpricing.
Keep direct costs out of the pool. Materials and labor that you already charge directly to jobs would be counted twice.
Review it regularly. Compare applied with actual overhead each quarter; a persistent underapplied balance means your rate is too low.
Consider multiple rates. If departments differ a lot (an assembly line vs. a machining cell), a separate rate for each gives more accurate job costs.
Frequently asked questions
What is the overhead rate formula?
Overhead rate = total overhead costs ÷ total allocation base. With $180,000 of overhead and 12,000 direct labor hours, the rate is $15 per labor hour. With $180,000 of overhead and $360,000 of direct labor cost it is 50% of direct labor cost.
What is a predetermined overhead rate?
It is an overhead rate set before the period starts, using estimated overhead and an estimated base. Businesses use it so they can cost and price jobs during the year instead of waiting for the actual overhead total at year end.
Which allocation base should I use?
Pick the activity that most drives overhead. Labor-intensive work such as construction or custom fabrication often uses labor hours or labor cost. Automated production where equipment drives costs usually uses machine hours. Businesses with a simple product mix sometimes use a percentage of direct cost.
How do I apply overhead to a job?
Multiply the overhead rate by the job's amount of the base. A job using 40 labor hours at a $15 rate receives $600 of overhead. Add it to the job's direct materials and direct labor to get the total job cost.
What is over- or underapplied overhead?
At period end, applied overhead (rate × actual base used) rarely equals actual overhead. If more was applied than incurred, overhead is overapplied; if less, it is underapplied. Small differences are usually adjusted through cost of goods sold.
What counts as overhead?
Overhead is any cost of producing goods or delivering work that cannot be traced directly to one job: supervisors, maintenance, factory rent and utilities, equipment depreciation, insurance, property taxes and shop supplies. Direct materials and direct labor are not overhead.
Is the overhead rate the same as the labor burden rate?
No. The labor burden rate covers costs tied to each employee, such as payroll taxes and benefits. The overhead rate covers indirect business costs like rent and equipment. Many contractors use both: burdened labor cost plus an overhead rate.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.