The Plantwide Overhead Rate Calculator serves as a pivotal tool for businesses, especially in the manufacturing sector. It accurately distributes overhead costs—expenses not directly tied to production like utilities and equipment maintenance—across products. This allocation is crucial for pricing, budgeting, and financial analysis, ensuring companies maintain profitability and competitive pricing.
Formula of Plantwide Overhead Rate Calculator
To understand the plantwide overhead rate calculation, consider the following formula:
Plantwide Overhead Rate = Total Manufacturing Overhead Costs / Total Amount of Allocation Base
- Total Manufacturing Overhead Costs are the sum of all production-related expenses not directly associated with materials or labor. This includes:
Total Manufacturing Overhead Costs = Indirect Materials + Indirect Labor + Other Overhead Costs
- Total Amount of Allocation Base varies but typically involves direct labor hours, machine hours, or direct labor costs. This base provides a fair method for allocating overhead across different products or services.
Table for General Terms and Calculations
| Manufacturing Sector | Average Plantwide Overhead Rate | Allocation Base Used |
|---|---|---|
| Automotive | $45 per machine hour | Machine hours |
| Textiles | $30 per direct labor hour | Direct labor hours |
| Electronics | $50 per machine hour | Machine hours |
| Furniture | $25 per direct labor hour | Direct labor hours |
| Chemicals | $40 per machine hour | Machine hours |
| Food Processing | $20 per direct labor hour | Direct labor hours |
Example of Plantwide Overhead Rate Calculator
Imagine a company with $100,000 in total manufacturing overhead costs and 50,000 machine hours as its allocation base. The plantwide overhead rate would be:
$100,000 / 50,000 hours = $2 per machine hour
This means for every machine hour worked, $2 of overhead costs are allocated.
Most Common FAQs
A1: It ensures that overhead costs are fairly allocated across all products, helping businesses price their products accurately and maintain profitability.
A2: Yes, businesses may choose different bases (e.g., direct labor hours, machine hours) depending on which most accurately reflects their operations and cost structure.