Overhead Rate Calculator

How it is calculated

Enter total overhead (indirect costs) for the period and the total of the allocation base, here called direct costs, for the same period. The tool divides: rate = overhead / direct costs. It shows the result twice: as a percentage (rate × 100) and as an amount per one unit of the base, written with a dollar sign.

Overhead cannot be negative and direct costs must be above zero, otherwise there is no result. The tool does not decide which base you should use. If you enter direct labour hours or machine hours instead of money, the percentage is not meaningful, and the second figure is an amount per hour even though it carries a dollar sign. To apply the rate, multiply it by the base of a particular job.

Common mistakes

• Using different periods for the two inputs, such as annual overhead with quarterly direct costs. The rate would be four times too high.
• Putting direct costs that already include overhead in the denominator. The base should hold only the direct items.
• Applying a rate based on labour cost to a job measured in machine hours. The rate only works with the same base it was built from.
• Leaving selling or administrative costs out of overhead when they are meant to be included. The rate then understates what a job should be priced at.
• Treating the rate as profit or markup. It recovers indirect costs; a profit margin is added on top.