How to Calculate Applied Overhead

by Carter McBride; Updated September 26, 2017
Calculating applied overhead

Overhead is any costs which are not directly involved in the manufacturing of a product or part of the administrative expenses associated with manufacturing the product. Management calculates applied overhead either in a normal costing system or standard costing system. A normal costing system multiplies the actual hours worked by a predetermined overhead rate. A standard costing system multiplies an estimated hours to work by a predetermined overhead rate.

Step 1

Determine the actual hours worked, the predetermined overhead rate and the estimated hours worked. For example, Firm A had direct labor hours of 300 hours, they estimated 280 hours of work and estimated $4.50 of overhead per direct labor hour.

Step 2

Multiply the actual hours worked by the estimated overhead per hour to calculate applied overhead in a normal costing system. In the example, 300 hours times $4.50 per hour equals applied overhead of $1,350.

Step 3

Multiply the estimated direct labor hours by the estimated overhead per hour to calculate applied overhead in a standard costing system. In the example, 280 hours times $4.50 per hour equals applied overhead of $1,260.

About the Author

Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.

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