Predetermined Overhead Rate Calculator
Set the rate used to apply manufacturing overhead to jobs for the coming period.
What this calculator does
Budgeted overhead for the period divided by the budgeted quantity of the chosen allocation base. Both figures are the organisation's own budget. No industry overhead percentage is suggested.
Inputs and what they mean
- Currency
- — Amounts are shown in the currency you pick. No exchange rate is applied..
- Estimated manufacturing overhead
- — number value.
- Estimated allocation base
- — Direct labour hours, machine hours or direct labour cost..
- Actual base used so far (optional)
- — number value.
How to use it
- Enter your own figures — the calculator never fills in a rate, price or benchmark for you.
- Press Calculate to see the result.
- Read the formula, variables, assumptions and source below the result before you rely on it.
Formula
Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total allocation base
Worked example
$600,000 of overhead over 40,000 machine hours
A planning rate of $15.00 per machine hour.
Reading the result
The headline figure is the main answer. Any breakdown underneath shows the parts that make it up, so you can check the working and see what changes when you adjust an input.
Limitations and assumptions
Results depend entirely on the figures you enter and are rounded for display. They are for general information and education, not professional advice.
Reference: OpenStax — Principles of Accounting, Volume 2: Managerial Accounting
Last reviewed:
Common questions
Formula, source and verification
Budgeted overhead for the period divided by the budgeted quantity of the chosen allocation base.
The question it answers: What rate should we use to apply factory overhead to jobs this year?
The formula
Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total allocation base
- OH — Estimated manufacturing overhead
- (currency). Budgeted indirect production cost for the period.
- Base — Estimated allocation base
- (hours or currency). Budgeted direct labour hours, machine hours or direct labour cost.
- Applied — Actual base used
- (hours or currency). Optional: actual activity, to show overhead applied.
Units: Currency per base unit.
What kind of calculation this is
Business input model. The answer depends on business figures only you can supply, such as your own costs, rates or volumes. No market or benchmark values are assumed for you.
Method
Both figures are the organisation's own budget. No industry overhead percentage is suggested.
Assumptions built into the result
- Mathematical: Overhead and base are budgeted for the same period and the same cost pool.
Figures this calculator will never guess for you
- No typical or average overhead rate is inserted.
Limitations
- A planning rate. Actual overhead will differ, producing over- or under-applied overhead.
Source and version
- Standard or reference
- Job order costing — predetermined overhead rate (OpenStax, Principles of Accounting Volume 2: Managerial Accounting, job order costing.)
- Published source
- OpenStax — OpenStax (CC BY)
- Formula version
- Version 1
- Verification
- Reviewed against the cited source on
- How much weight the source carries
- Academic
- Applies to
- Currency
- Amounts stay in the currency you choose; no exchange rate is applied.
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