What is Overhead Rate?
The overhead rate, also known as the overhead allocation rate or overhead absorption rate, is a measure used in cost accounting to allocate indirect costs to products or services. Indirect costs are expenses that are not directly attributable to a specific product or service but are incurred in the overall operation of a business. These costs can include rent, utilities, administrative salaries, and depreciation.
The overhead ate is typically calculated by dividing the total indirect costs incurred by a business by a relevant cost driver, such as direct labor hours, machine hours, or labor cost.
Once the overhead rate is determined, it is applied to each unit of the cost driver to allocate overhead costs to the products or services produced. This allows businesses to more accurately determine the total cost.
How to Calculate Overhead Rate?
Overhead Rate calculator uses Overhead Rate = Overhead Costs/Revenue to calculate the Overhead Rate, The Overhead Rate is a financial metric used to allocate indirect costs or overhead expenses to the direct costs of production or services. Overhead Rate is denoted by OR symbol.
How to calculate Overhead Rate using this online calculator? To use this online calculator for Overhead Rate, enter Overhead Costs (OC) & Revenue (Rev) and hit the calculate button. Here is how the Overhead Rate calculation can be explained with given input values -> 5.833333 = 350000/60000.