Overhead Rate Calculator
This calculator computes the overhead absorption rate for a business or department. Enter your total monthly or annual overhead costs (rent, utilities, administration, depreciation) and your cost driver total (labor hours, machine hours, or direct labor dollars). Select the driver type to see your rate in the correct unit. Optionally enter units produced to see overhead per unit. Use this rate when quoting jobs, setting prices, or analyzing product profitability.
Overhead rate formula
Total overhead = Rent + Utilities + Admin + Depreciation + Other
Overhead rate = Total overhead / Cost driver total
Overhead per unit = Total overhead / Units produced
How to apply the overhead rate
Once you have an overhead rate (for example, $31.00 per labor hour), multiply it by the hours a specific job takes. A job requiring 10 hours absorbs $310 of overhead. Add this to direct material and direct labor costs to get the full job cost.
Overhead rate calculator: frequently asked questions
What is an overhead absorption rate?
The overhead absorption rate (OAR) allocates indirect costs (rent, utilities, admin) to products or jobs. It divides total overhead by a cost driver such as labor hours, machine hours, or direct labor cost, giving a rate to apply per unit of the driver.
Which cost driver should I use?
Use labor hours for labor-intensive businesses. Use machine hours for capital-intensive or automated production. Use direct labor cost (a percentage) when labor rates vary significantly across jobs. Service businesses most commonly use labor hours.
What costs count as overhead?
Overhead is indirect costs not directly tied to a specific product or job: rent, utilities, office salaries, insurance, depreciation on shared equipment, IT, marketing, and accounting fees.
What is the overhead rate per unit?
If you enter units produced, the calculator also shows how much overhead is absorbed per unit. This is overhead divided by units. Useful for product costing and pricing decisions.
How often should I recalculate overhead rates?
Recalculate at least annually when setting prices or budgets. If your cost base or activity levels change significantly mid-year, recalculate quarterly.
Official sources
- U.S. Small Business Administration: Managing business finances.
- IRS Publication 535: Business expenses (overhead deductibility).
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.