Overhead Rate Calculator

The overhead rate tells you how much indirect cost is attached to every unit of direct activity, usually per labor hour, per machine hour, or per dollar of direct cost.
It is one of the most important numbers in cost accounting, because it is what lets you price a job accurately instead of guessing and hoping the year comes out ahead.

Formula: Overhead Rate (%) = Total Indirect Costs ÷ Total Direct Costs × 100

What each variable means:

• Total Indirect Costs: all costs that cannot be traced to a single job: rent, utilities, insurance, depreciation, supervisor salaries, office supplies.
• Total Direct Costs: the materials and production labor the overhead is spread across. This calculator uses total direct cost in dollars as the base.

Worked example: A small shop has $25,000 in monthly indirect costs (rent, utilities, insurance, admin) and $75,000 in monthly direct costs (materials and production labor).

Overhead Rate = $25,000 ÷ $75,000 × 100 = 33.3%

So for every $1 of direct cost on a job, add about 33 cents of overhead when you price it.

Typical ranges, as a percentage of direct cost:

This calculator returns a percentage, so these are stated the same way. Published overhead benchmarks are often quoted in dollars per labor hour instead, which is a different measure entirely and cannot be compared against the number this page gives you.

The spread inside each row is wider than most people expect, and the reason is what you counted as direct. A shop that puts materials in direct costs will always show a lower overhead percentage than one that counts only labor, on identical books. Decide which base you are using, write it down, and stay on it. Comparing your figure against a competitor who used the other base tells you nothing.

If your rate is climbing year over year, look at fixed costs first. Rent and insurance are the usual culprits, and neither shrinks when revenue dips.