Plantwide Overhead Rate Calculator
Calculate your manufacturing overhead allocation rate per activity unit.
What is a Plantwide Overhead Rate?
The plantwide overhead rate is a simplified cost accounting method used by manufacturing companies to allocate all indirect manufacturing costs (overhead) to products using a single, uniform rate. Instead of calculating different rates for different departments, the entire factory uses one "blanket" rate based on a common activity level, known as the allocation base.
The Plantwide Overhead Rate Formula
The calculation is straightforward. You divide the total costs by the chosen activity base:
Understanding the Inputs
- Total Estimated Manufacturing Overhead: This includes all indirect costs such as factory rent, utilities, depreciation on machinery, factory supervisor salaries, and maintenance supplies.
- Allocation Base: This is the volume metric used to distribute costs. Common bases include direct labor hours (for manual environments) or machine hours (for automated environments).
When to Use This Calculator
A plantwide rate is most effective for small businesses or companies that produce a limited variety of products that all consume resources in a similar way. If your manufacturing process is heavily departmentalized or if some products require much more machine time than others, you might consider Departmental Overhead Rates or Activity-Based Costing (ABC) for better accuracy.
Practical Example
Scenario: A furniture factory estimates its total overhead for the year will be $1,200,000. They expect to work a total of 40,000 direct labor hours across all production lines.
Calculation: $1,200,000 / 40,000 hours = $30.00 per direct labor hour.
For every hour a worker spends on a specific chair, $30 of overhead is added to that chair's cost.
Advantages and Disadvantages
The primary advantage of the plantwide approach is simplicity. It is easy to calculate, easy to understand, and requires less data tracking than complex costing systems. However, its main disadvantage is cost distortion. If one product uses expensive automated machinery and another is handmade, a plantwide rate based on labor hours would unfairly shift the machine-related costs onto the handmade product.