## Budgeted overhead allocation rate formula

The production overheads calculated for each production department after going through apportionment and allotment are used to calculate overhead absorption rate. There are six basis (methods) to calculate an overhead cost absorption rate. Formula: General formula for calculating overhead absorption rate is as follows: Solved Example:

## Calculating overhead costs can help you budget correctly, track finances and To calculate the overhead rate, divide the indirect costs by the direct costs and you would need to know the percentage of a dollar that is allocated to overheads.

### Formula for calculating the Pre-determined Overhead Rate. A pre-determined overhead rate is the rate used to apply manufacturing overhead to the basis to calculate the overhead rate: Overhead Rate = (Total budgeted overhead / Basis)

Thus, the overhead allocation formula is: Cost pool ÷ Total activity measure = Overhead allocation per unit. You can allocate overhead costs by any reasonable measure, as long as it is consistently applied across reporting periods. A pre-determined overhead rate is the rate used to apply manufacturing overhead to work-in-process inventory. The pre-determined overhead rate is calculated before the period begins. The first step is to estimate the amount of the activity base that will be required to support operations in the upcoming period.