function calculateOverheadRate() {
// Get input values using var
var overheadInput = document.getElementById('estTotalOverhead');
var hoursInput = document.getElementById('estTotalMachineHours');
var resultContainer = document.getElementById('result-container');
var rateResult = document.getElementById('rate-result');
var breakdownResult = document.getElementById('result-breakdown');
var errorMsg = document.getElementById('error-message');
// Parse values
var totalOverhead = parseFloat(overheadInput.value);
var totalHours = parseFloat(hoursInput.value);
// Reset display
errorMsg.style.display = 'none';
resultContainer.style.display = 'none';
// Validation Logic
if (isNaN(totalOverhead) || totalOverhead < 0) {
errorMsg.innerHTML = "Please enter a valid amount for Total Overhead Costs.";
errorMsg.style.display = 'block';
return;
}
if (isNaN(totalHours) || totalHours <= 0) {
errorMsg.innerHTML = "Please enter a valid number of Machine Hours (must be greater than 0).";
errorMsg.style.display = 'block';
return;
}
// Calculation: Rate = Total Overhead / Total Machine Hours
var rate = totalOverhead / totalHours;
// Formatting Output
var formattedRate = rate.toFixed(2);
// Display Results
rateResult.innerHTML = "$" + formattedRate + " per machine hour";
breakdownResult.innerHTML = "For every hour a machine runs, $" + formattedRate + " of overhead cost is allocated to production.";
resultContainer.style.display = 'block';
}
How to Calculate Predetermined Overhead Rate per Machine Hour
In manufacturing environments, specifically those that are heavily automated, allocating indirect costs (overhead) to specific products can be challenging. Unlike direct materials or direct labor, overhead cannot be traced directly to a single unit. To solve this, accountants use a Predetermined Overhead Rate (POHR).
When the production process relies more on machinery than human labor, the most accurate allocation base is usually Machine Hours. This calculator helps you determine that specific rate.
The Formula
The calculation for the predetermined overhead rate per machine hour is performed at the beginning of the accounting period using estimated figures:
Predetermined Overhead Rate = Estimated Total Manufacturing Overhead Costs / Estimated Total Machine Hours
Step-by-Step Calculation Guide
Estimate Overhead Costs: Sum up all budgeted indirect manufacturing costs for the coming period. This includes factory rent, electricity, depreciation on machinery, indirect materials (lubricants, glue), and indirect labor (supervisor salaries).
Estimate Machine Hours: Determine the total number of hours your machinery is expected to run during the same period. This is your "allocation base."
Divide: Divide the total costs by the total hours to get your rate.
Why Use Machine Hours?
Traditionally, overhead was applied based on Direct Labor Hours. However, in modern "Industry 4.0" factories, robots and automated CNC machines do most of the work. In these scenarios:
Direct labor costs are low.
Depreciation and maintenance (overhead) are high.
Machine run-time correlates more strongly with overhead consumption than labor time does.
Calculation Example
Let's say a manufacturer of precision auto parts estimates the following for the upcoming year: