Direct Labor Hours
Machine Hours
Direct Labor Cost ($)
Units of Production
Calculation Result
Your Budgeted Manufacturing Overhead Rate is:
function updateBaseLabel() {
var type = document.getElementById('baseType').value;
var labelElement = document.getElementById('baseLabel');
if (type === 'dlh') {
labelElement.innerText = "Total Estimated Direct Labor Hours";
} else if (type === 'mh') {
labelElement.innerText = "Total Estimated Machine Hours";
} else if (type === 'dlc') {
labelElement.innerText = "Total Estimated Direct Labor Cost ($)";
} else if (type === 'units') {
labelElement.innerText = "Total Estimated Units of Production";
}
}
function calculateOverheadRate() {
// Get inputs
var overheadStr = document.getElementById('totalOverhead').value;
var baseStr = document.getElementById('totalBase').value;
var type = document.getElementById('baseType').value;
var resultContainer = document.getElementById('resultContainer');
var resultValue = document.getElementById('rateResult');
var resultExplanation = document.getElementById('rateExplanation');
// Parse numbers
var overhead = parseFloat(overheadStr);
var base = parseFloat(baseStr);
// Validation
if (isNaN(overhead) || isNaN(base) || overhead < 0 || base <= 0) {
resultContainer.style.display = 'block';
resultContainer.style.backgroundColor = '#fdeded';
resultContainer.style.borderColor = '#e74c3c';
resultContainer.querySelector('h3').style.color = '#c0392b';
resultValue.innerText = "Error";
resultExplanation.innerText = "Please enter valid positive numbers for both Overhead Costs and the Allocation Base. The Allocation Base cannot be zero.";
return;
}
// Reset styling for success
resultContainer.style.display = 'block';
resultContainer.style.backgroundColor = '#e8f6f3';
resultContainer.style.borderColor = '#a2d9ce';
resultContainer.querySelector('h3').style.color = '#16a085';
var rate = 0;
var formattedRate = "";
var textContext = "";
// Logic based on type
if (type === 'dlc') {
// If base is dollars, result is usually a percentage
rate = (overhead / base) * 100;
formattedRate = rate.toFixed(2) + "% of Direct Labor Cost";
textContext = "For every $1.00 spent on Direct Labor, you should allocate $" + (rate/100).toFixed(2) + " to manufacturing overhead.";
} else {
// Calculation for hours or units
rate = overhead / base;
var unitText = "";
if (type === 'dlh') unitText = "per Direct Labor Hour";
else if (type === 'mh') unitText = "per Machine Hour";
else if (type === 'units') unitText = "per Unit";
formattedRate = "$" + rate.toFixed(2) + " " + unitText;
textContext = "For every unit of the allocation base (e.g., 1 hour), you allocate $" + rate.toFixed(2) + " to overhead costs.";
}
// Output
resultValue.innerText = formattedRate;
resultExplanation.innerText = textContext;
}
What is Budgeted Manufacturing Overhead Rate?
The Budgeted Manufacturing Overhead Rate (also known as the Predetermined Overhead Rate) is a critical metric in cost accounting used to apply manufacturing overhead costs to products or job orders. Unlike direct materials and direct labor, overhead costs (such as factory rent, electricity, and supervisor salaries) cannot be directly traced to specific units of production.
To solve this allocation problem, companies calculate a budgeted rate at the beginning of a period (usually a year) to estimate the cost of overhead for every product produced. This allows for "Normal Costing," where managers can determine product costs in real-time without waiting for actual end-of-year utility bills or maintenance invoices.
How to Calculate the Rate
The calculation requires two estimated figures determined before the accounting period begins:
Total Estimated Manufacturing Overhead Costs: The sum of all expected indirect costs for the factory.
Total Estimated Allocation Base: The driver used to assign costs (e.g., labor hours, machine hours, or labor cost).
Budgeted Overhead Rate = Estimated Total Overhead Costs / Estimated Total Allocation Base
Choosing an Allocation Base
The accuracy of your costing depends heavily on selecting the right allocation base. Common bases include:
Direct Labor Hours: Best for labor-intensive manual manufacturing processes.
Machine Hours: Ideal for highly automated factories where machinery drives costs.
Direct Labor Cost: Used when overhead correlates strongly with the wages paid to workers (often expressed as a percentage).
Example Calculation
Consider a furniture manufacturing company, "TableCraft Inc." At the beginning of the year, their financial team estimates the following:
$600,000 / 20,000 hours = $30.00 per machine hour.
If a specific dining table takes 5 machine hours to cut and assemble, the allocated overhead cost for that table would be $150 (5 hours × $30).
Why Use a Budgeted Rate Instead of Actual?
Using a budgeted rate helps smooth out seasonal fluctuations. For example, heating costs may be high in winter and low in summer. If a company used actual rates, a product made in January would appear more expensive than the exact same product made in July. A budgeted annual rate averages these costs, providing consistent and comparable product costing throughout the year.