Overhead Rate
Barron's Accounting Dictionary:
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Overhead Rate
Rate, based on budgeted factory overhead cost and budgeted activity, that is established before a period begins.
Budgeted activity units used in the denominator of the formula, more often called the denominator level, are measured in direct labor-hours, machine-hours, direct labor costs, or production units.
Budgeted activity units used in the denominator of the formula, more often called the denominator level, are measured in direct labor-hours, machine-hours, direct labor costs, or production units.
| Predecessor Auditor, Precious Metals, Preaudit | |
| Preemptive Right, Preferred Creditor, Preferred Stock |
Investopedia Financial Dictionary:
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Overhead Rate
In managerial accounting, a cost added on to the direct costs of production in order to more accurately assess the profitability of each product. Overhead costs are all costs that are not directly related to the production of the good to be sold. These include administrative salaries, the costs of the building or machinery, commissions to salespeople, and many other items.
To allocate these costs, an overhead rate is applied that spreads the overhead costs around depending on how much resources a product or activity used. For example, overhead costs may be applied at a set rate based on the number of machine hours required for the product. In more complicated cases, a combination of several cost drivers may be used to approximate overhead costs.
Investopedia Says:
It is often difficult to assess precisely the amount of overhead costs that should be attributed to each production process. Therefore, costs must be estimated based on an overhead rate for each cost driver or activity.
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Barron's Accounting Dictionary
Dictionary of Accounting Terms. Copyright © 2010 by Barron's Educational Series, Inc. All rights reserved.
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Mentioned in
Applied Cost
(in accounting)
Overapplied Overhead
(in accounting)
Underapplied Overhead
(in accounting)
Plantwide Overhead Rate
(in accounting)
Multiple Overhead Rates
(in accounting)
» More