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Overhead Allocation Rate (Accounting) - Explained

What is the Allocation Rate?

Written by Jason Gordon

Updated at April 7th, 2022

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Table of Contents

What is Allocation Rate?

What is Allocation Rate?

The allocation rate is the amount of overhead cost per hour of labor that goes into the production of a unit. The calculation is as follows:

Total Overhead x Total Labor Hours = Overhead Allocation Rate 

This calculation applies equally if you have multiple products with varying total hours of labor required for production. To determine the specific allocation of overhead, you would multiply the Overhead Allocation Rate by the number of labor hours invested to produce that product. 

Back to: ACCOUNTING, TAX, & REPORTING

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