Plantwide Predetermined Overhead Rate Calculator

Calculate your manufacturing overhead allocation rate instantly.

Direct Labor Hours Machine Hours Direct Labor Cost ($)

Enter the total hours or total dollars depending on type selected above.

function calculateOverheadRate() { var overhead = parseFloat(document.getElementById('estimatedOverhead').value); var baseAmount = parseFloat(document.getElementById('estimatedBaseAmount').value); var baseType = document.getElementById('allocationBaseType').value; var resultContainer = document.getElementById('resultSection'); var resultValue = document.getElementById('finalRate'); var resultExp = document.getElementById('rateExplanation'); // Validation if (isNaN(overhead) || overhead < 0) { alert("Please enter a valid amount for Estimated Overhead."); return; } if (isNaN(baseAmount) || baseAmount <= 0) { alert("Please enter a valid amount greater than 0 for the Allocation Base."); return; } // Calculation var rate = overhead / baseAmount; var outputString = ""; var explanationString = ""; if (baseType === 'dlc') { // If base is dollars (Direct Labor Cost), rate is usually a percentage var percentage = rate * 100; outputString = percentage.toFixed(2) + "% of Direct Labor Cost"; explanationString = "For every $1.00 spent on direct labor, you allocate $" + rate.toFixed(2) + " in overhead."; } else { // If base is hours (Machine or Labor), rate is $ per hour var unitLabel = (baseType === 'dlh') ? "Direct Labor Hour" : "Machine Hour"; outputString = "$" + rate.toFixed(2) + " per " + unitLabel; explanationString = "For every " + unitLabel + " used, you allocate $" + rate.toFixed(2) + " in overhead."; } // Display Results resultValue.innerHTML = outputString; resultExp.innerHTML = explanationString; resultContainer.style.display = "block"; }

What is a Plantwide Predetermined Overhead Rate?

The Plantwide Predetermined Overhead Rate is a single rate used to allocate all manufacturing overhead costs to jobs or products. Unlike departmental rates or Activity-Based Costing (ABC), which use multiple drivers, the plantwide method assumes that a single allocation base (volume driver) reflects the consumption of overhead resources across the entire factory.

The Formula

The rate is calculated at the beginning of the accounting period using estimated figures. The formula is:

Predetermined Overhead Rate = Estimated Total Manufacturing Overhead / Estimated Total Allocation Base

Common allocation bases include:

• Direct Labor Hours: Used when labor is the primary driver of production.
• Machine Hours: Used when production is highly automated.
• Direct Labor Cost: Used when overhead correlates with the wages paid to workers.

Example Calculation

Imagine a furniture manufacturing company, "TableCraft Inc." They estimate their financials for the upcoming year as follows:

• Total Estimated Overhead: $1,200,000 (Rent, Utilities, Supervisor Salaries, Depreciation)
• Allocation Base Selected: Direct Labor Hours
• Total Estimated Direct Labor Hours: 40,000 hours

Using the calculator above:
Rate = $1,200,000 / 40,000 Hours = $30.00 per Direct Labor Hour.

If a specific dining table takes 10 labor hours to build, the applied overhead for that table would be $300 (10 hours × $30).

Why is this Important?

Calculating a predetermined rate is crucial for Normal Costing. It allows companies to:

• Estimate Job Costs Immediately: You don't have to wait until the end of the year to know actual utility bills to price your products.
• Smooth Out Fluctuations: Actual overhead costs vary month to month (e.g., heating costs in winter), but a predetermined rate smooths these costs over the year.
• Set Prices Accurately: Ensuring all indirect costs are covered in the product price helps maintain profitability.

Plantwide vs. Multiple Departmental Rates

While the plantwide rate is the simplest method, it can be inaccurate if a factory produces a diverse range of products that consume resources differently. For complex manufacturing environments, using departmental rates or Activity-Based Costing (ABC) might provide more precise cost allocation. However, for smaller firms or single-product lines, the plantwide rate remains a standard and effective accounting tool.