Overhead Allocation Rate (Accounting) - Explained
What is the Allocation Rate?
Written by J. Mance Gordon
Updated at April 18th, 2024
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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.
Related Topics
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- Assign Direct Material and Direct Labor to Job
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- Plantwide Cost Allocation
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- Activity-Based Costing
- Weighted-Average Cost of Products
- Production Cost Report
- Fixed, Variable, and Mixed Cost Estimations
- Contribution Margin Income Statement
- Cost-Volume-Profit Analysis
- Margin of Safety
- Contribution Margin per Unit of Constraint
- Absorption Costing vs Variable Costing
- Differential Analysis and Decisions
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- Imputed Value
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