To calculate the rate of overhead, divide the indirect costs by the allocation measure you're using. So, the denominator in your formula may be the total number of direct labor hours involved.

The overhead ratio measures how much of a company's total revenue is spent on indirect costs. This metric is useful for identifying areas where costs can be reduced to improve profitability.

While fixed costs remain constant regardless of production volume (like rent, overhead, or insurance), and average cost is the total cost divided by the number of units produced, marginal cost ...

In the box below is an example of how the formula cited above can be applied ... or charge the unallocated cost to overhead. Keeping your rate to 50% to 60% of the rental company rental rate ...

and fixed manufacturing overhead. Unlike variable costing, which only considers direct variable costs and not fixed costs, absorption costing ensures that fixed overhead costs are spread across ...