How much overhead each unit absorbs at different labor hours per unit, using the overhead-per-hour rate from your inputs. Helps you see the burden on simple versus labor-heavy products. Same rate as the calculator.
Labor hours per unit
Overhead per hour
Overhead burden per unit
0.5
$20.00
$10
1
$20.00
$20
2
$20.00
$40
4
$20.00
$80
8
$20.00
$160
Estimates only — not financial, tax, or professional advice.
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What it calculates: Overhead per Labor Hour, Overhead per Unit, Total Annual Overhead.
Updated 5 June 2026 · Transparent assumptions
Per labour hour and per unit answer different questions
Allocating by labour hours loads cost onto whatever takes the most time; allocating per unit spreads it evenly regardless. For a shop making one labour-intensive product and one quick one, the two bases produce opposite pictures of which is worth making.
Neither is universally right. The base should be whatever actually drives the indirect cost — labour hours where supervision and space scale with time worked, machine hours where equipment does, units where the overhead is genuinely per-item.
Rent, utilities, supervision, depreciation and indirect labour
Direct materials and direct labour are traced to a job. Everything else needed to produce — factory rent, utilities, equipment depreciation, maintenance, supervision, quality control and indirect materials — is overhead, and has to be allocated because it cannot be traced.
Where the line falls matters for pricing. Selling and administrative costs are typically excluded from manufacturing overhead and recovered in the margin instead, so pricing a job at direct cost plus manufacturing overhead alone leaves those unrecovered.
You cannot wait until year end to price a job
Actual overhead and actual activity are only known once the period is over, so a predetermined rate is normally set from budgeted figures at the start and applied as work is done. At the end, applied overhead is compared with actual and the variance is written off or spread back.
Persistent under-application usually means the activity forecast was optimistic, which is worth investigating rather than journaling away: the same optimism is probably in the prices quoted on that rate.
Volume changes the rate, which makes it dangerous for decisions
Most overhead is fixed in the short run, so allocating it per unit makes unit cost fall as volume rises and rise as volume falls. A drop in output therefore makes every remaining unit look more expensive, even though nothing about producing it changed.
This is why incremental decisions — whether to accept one more order, whether to drop a product — should use the costs that actually change, not the allocated rate. The allocation is for pricing and reporting; the marginal cost is for the decision.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Results are estimates for planning and analysis based on the figures you enter. They are not accounting, tax, or financial advice — verify with your own records and a qualified professional before making decisions.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Tested the allocation of one overhead total across direct labour hours and across units produced, as two independent rates.
Tested that each rate times its own base recovers the overhead total, and that a zero base does not divide by zero.
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