Predetermined Overhead Rate Calculator
The predetermined overhead rate is the bridge between estimated factory overhead and the cost of each job: one division turns a year’s budget into a rate you can apply while production is still running. This calculator covers the whole job, not just the first division, with four modes that match the four questions cost accountants actually ask: the basic rate, the plantwide fixed-plus-variable build, the percentage-of-labor-cost expression, and the applied-overhead calculation that puts the rate to work on a real job.
The rate is always built from estimates made before the period begins; the base units in the Apply tab are the actual units the job used. Results stay hidden until you calculate.
Quick Answer
A shop estimates $84,000 of overhead and 12,000 machine hours for the year: the predetermined rate is $7.00 per machine hour. Built plantwide from $120,000 fixed plus $80,000 variable overhead over 25,000 direct labor hours, the same idea gives $8.00 per direct labor hour on a total of $200000.00 estimated overhead. Against $600,000 of direct labor cost, $120,000 of overhead is 20.00%, which is $0.20 of overhead per $1 of direct labor. Apply an $8.00 rate to a job that used 750 hours and the calculator reports $6000.00 of overhead applied. All four figures come straight from the calculator above, which is pre-filled with these exact inputs.
Key takeaways
- The rate is always built from estimates made before the period starts. Actual overhead is only known at the end, which is exactly why the predetermined rate exists.
- Pick the allocation base that tracks your overhead: machine hours for automated shops, labor hours or labor dollars where people drive the cost.
- A percentage-of-labor-cost rate applies to any job's labor dollars with one multiplication, which is why service firms prefer it over an hourly rate.
- The point of the rate is the Apply tab: rate times actual base units is the overhead that lands on the job cost sheet. The first three tabs just build the rate.
- When applied overhead differs from actual overhead at year-end, the gap is underapplied or overapplied overhead, and it gets closed out, usually into cost of goods sold.
- Quick Answer
- How to use the predetermined overhead rate calculator
- The predetermined overhead rate formulas
- Worked example: one shop, four questions
- Plantwide rate vs departmental rates: when one number is not enough
- Predetermined vs actual: the underapplied and overapplied reckoning
- What competing calculators miss
- Frequently asked questions
- Add This Calculator to Your Website
- References
How to use the predetermined overhead rate calculator
Pick the tab that matches your question, check the pre-filled example numbers, and click the Calculate button for that tab. Results stay hidden until you calculate, and every mode has its own Copy and Share buttons for job-cost memos.
- Basic rate: enter estimated total overhead and the estimated allocation base, then choose the base type so the answer is labeled correctly. The tool returns the rate in dollars per unit of your base, e.g. $7.00 per machine hour.
- Plantwide: enter total fixed overhead and variable overhead at the target activity level. The tool adds them and divides by the allocation base for one plantwide rate, showing the total estimated overhead as an audit line.
- % of labor cost: enter estimated overhead and estimated direct labor cost. The tool expresses the rate as a percentage of labor cost, plus the dollars of overhead per $1 of labor, which is the form service and job shops quote.
- Apply to job: enter a rate you already computed and the actual base units the job used. The tool returns the overhead applied to that job, which is what gets recorded on the job cost sheet.
Validation is inline, not a popup: leave a field blank, enter a negative where it makes no sense, or divide by zero, and the tab tells you exactly what to fix. Reset restores the worked-example values rather than blanking everything, so you always have a sane starting point.
The predetermined overhead rate formulas
Every mode is one division with a clear accounting meaning. The OpenStax managerial accounting text states the core idea plainly: the predetermined overhead rate is the estimated overhead divided by the activity base, and overhead is then allocated to products on that basis as production runs.
Plantwide: POHR = (Fixed Overhead + Variable Overhead at Target Activity) ÷ Allocation Base
Percentage: POHR = (Overhead ÷ Direct Labor Cost) × 100
Applied: Applied Overhead = Predetermined Rate × Actual Base Units Used
Notice what the formulas never use: actual overhead. The rate is computed at or before the beginning of the period from budgeted figures, as ACCA's technical article on overhead absorption explains, because actual overhead and actual activity cannot be known until the period is over. The Apply formula is the one place actuals enter: the rate is predetermined, but the base units are the job's actual consumption.
Worked example: one shop, four questions
Take a machine shop that budgets $84,000 of overhead and 12,000 machine hours for the year. The Basic tab divides the two and reports $7.00 per machine hour. Now look at the same shop plantwide: $120,000 of fixed overhead plus $80,000 of variable overhead at the target activity level, over 25,000 direct labor hours. The Plantwide tab adds first, showing $200000.00 of total estimated overhead, then reports $8.00 per direct labor hour.
The percentage form answers a different audience: with $120,000 of overhead on $600,000 of direct labor cost, the tool reports 20.00%, i.e. $0.20 of overhead per $1 of direct labor. And the reason the rate exists at all: a job that actually used 750 hours at an $8.00 rate absorbs $6000.00 of overhead, computed on the Apply tab. Every number in this section is a real run of the calculator above. Once a job has its applied overhead, the cost-per-unit calculator rolls that absorbed cost into the job's full per-unit cost.
| Allocation base chosen | $84,000 ÷ 12,000 units | How you would read it |
|---|---|---|
| Machine hour | $7.00 per machine hour | Each machine hour on a job absorbs $7.00 of overhead |
| Direct labor hour | $7.00 per direct labor hour | Each labor hour absorbs $7.00, tracked on time tickets |
| Dollar of direct labor cost | $7.00 per dollar of direct labor cost | Odd reading; this base belongs in the % tab instead |
| Unit produced | $7.00 per unit produced | Each finished unit carries $7.00 of overhead |
The table shows why the base-type selector matters: the arithmetic is identical, but "$7.00 per machine hour" and "$7.00 per unit produced" describe completely different costings. Choosing the base that actually drives your overhead, as the OpenStax job-order-costing chapter discusses, is the single most consequential decision in this whole exercise.
Plantwide rate vs departmental rates: when one number is not enough
A plantwide rate uses one base for the entire plant, which is simple and defensible when every department consumes overhead in roughly the same proportions. The moment departments differ, say machining is machine-hour intensive while assembly is labor intensive, a single rate overcharges the labor-heavy work and undercharges the machine-heavy work.
The honest answer then is departmental rates: compute the same formula per department with each department's own base. The OpenStax answer key for the activity-based costing chapter makes the parallel point for ABC systems, which take the same logic further with multiple cost drivers per department. The Plantwide tab here builds the single-rate case explicitly from fixed plus variable, so you can see what the plantwide number assumes before you decide whether you need to split it.
Predetermined vs actual: the underapplied and overapplied reckoning
Applied overhead is a prediction, and predictions miss. At year-end the actual overhead in the manufacturing overhead account is compared against everything the predetermined rate applied. If applied is less than actual, overhead is underapplied; if more, overapplied. That variance is then closed out, most commonly into cost of goods sold, per the OpenStax chapter summary.
| What happened | Applied vs actual | What it tells you |
|---|---|---|
| Underapplied overhead | Applied < actual | Jobs were undercosted; the shortfall is added back, usually to cost of goods sold |
| Overapplied overhead | Applied > actual | Jobs were overcosted; the excess is backed out of cost of goods sold |
Two companion tools dissect that year-end variance precisely: the fixed overhead volume variance calculator isolates the portion caused by producing more or less than the budgeted activity, and the controllable overhead variance calculator isolates the spending side. Run this page during the year to apply overhead; run those two at year-end to explain why the prediction missed.
What competing calculators miss
The field splits into single-division tools and explainers, and each leaves the job half done:
- Basic-division tools (bravecalculator's two near-identical pages, areacalculators): estimated overhead divided by an activity base, one worked example each. Correct as far as they go, but there is no base-type labeling, no percentage form, and no way to apply the rate. One of them even ships the same calculator on two different URLs.
- Percentage-form pages (cal67): a solid worked example of the labor-cost percentage, plus machine-hour and labor-hour variants, but each is a static illustration, not a reusable tool with copyable output.
- Plantwide-only (calculatorshub): the one competitor that builds fixed plus variable, but that is the only thing it does. No percentage form, no apply step.
- Explainers (Linnworks, FasterCapital, firgelliauto's walkthrough): good conceptual coverage, including a full job-cost walkthrough with applied overhead, but you do the arithmetic yourself in a spreadsheet.
- The gap this page fills: all four steps in one tabbed tool, with the base type labeled on the answer, the fixed-plus-variable build shown as an audit line, the labor-cost percentage with its per-dollar reading, and the applied-overhead step that is the entire reason the rate exists, each with Copy and Share for cost memos.
Frequently asked questions
It is the estimated manufacturing overhead for a period divided by an estimated allocation base (such as machine hours or direct labor cost) for the same period. It lets you apply overhead to jobs as they are produced instead of waiting until actual overhead is known at year-end.
Actual overhead and actual activity are only known after the period closes, but pricing, bidding, and job costing have to happen during the period. The predetermined rate trades a small year-end variance for timely cost information all year long.
Choose the driver that actually tracks your overhead. Machine hours fit automated shops, direct labor hours fit labor-intensive work, and dollars of direct labor cost give a percentage rate that service and job shops find easy to apply. The base-type selector on the Basic and Plantwide tabs labels the answer so the choice is explicit.
A plantwide rate applies one base across the whole plant. It is fine when departments consume overhead in similar proportions. When departments differ, for example a machine-heavy shop beside a labor-heavy assembly line, departmental rates computed with the same formula per department give fairer job costs.
Divide estimated overhead by estimated direct labor cost and multiply by 100. A 20.00% rate means every $1 of direct labor on a job carries $0.20 of overhead, so you apply overhead with a single multiplication of the job's labor dollars.
Applied overhead is the predetermined rate times the actual base units a job used, and it is what gets recorded on the job cost sheet. Note the mix: the rate is predetermined from estimates, but the usage is actual. Use the Apply tab for this step.
Then overhead is underapplied (applied less than actual) or overapplied (applied more than actual), and the difference is closed out, usually into cost of goods sold. The fixed overhead volume variance and controllable overhead variance calculators on this site break that gap into its activity and spending causes.
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References
- OpenStax. Principles of Accounting, Volume 2: Managerial Accounting, Chapter 4 Summary (predetermined overhead rate as estimated overhead divided by the activity base; underapplied and overapplied overhead). Accessed October 23, 2026.
- OpenStax. 4.5 Compute the Cost of a Job Using Job Order Costing (overhead allocated on the basis of the predetermined overhead rate; job cost sheets). Accessed October 23, 2026.
- OpenStax. Principles of Accounting, Volume 2, Chapter 6 Answer Key (traditional allocation bases: direct labor hours, direct labor dollars, machine hours; activity-based costing with multiple cost drivers). Accessed October 23, 2026.
- Association of Chartered Certified Accountants (ACCA). Fixed overhead absorption (absorption rates use budgeted figures because actuals are unknowable in advance; under- and over-absorption mechanics). Accessed October 23, 2026.
- LibreTexts (OpenStax mirror). Managerial Accounting, 4.10 Summary and Key Terms (job order costing flow: overhead assigned to jobs via the predetermined rate). Accessed October 23, 2026.