ECONOMICS

Detailed explanation-1: -You may also calculate the overhead rate based on direct labor hours. Divide the overhead costs by the direct labor hours over the same measurement period. In the example, the overhead rate is $20 for each direct labor hour ($2, 000/100).

Detailed explanation-2: -The overhead rate is calculated by adding your indirect costs and then dividing them by a specific measurement such as machine hours, sales totals, or labor costs. Direct costs are the costs that directly impact production such as direct labor, direct materials, and manufacturing supplies.

Detailed explanation-3: -You can calculate applied manufacturing overhead by multiplying the overhead allocation rate by the number of hours worked or machinery used. So if your allocation rate is $25 and your employee works for three hours on the product, your applied manufacturing overhead for this product would be $75.