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180,000 of overhead on 6,000 labor hours
Annual overhead is 180,000. Direct labor is 6,000 hours and 240,000 of cost. This job uses 40 of those hours in the same year.
Annual overhead: 25% lower
Change annual overhead to 135,000 while keeping the other example values the same.
Annual overhead: 25% higher
Change annual overhead to 225,000 while keeping the other example values the same.
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Quick answer
What does the Job costing overhead rate calculate?
What overhead does each direct labor hour carry for the year you type? This calculator uses annual overhead, direct labor hours, direct labor cost, and hours on this job to estimate overhead on a labor base immediately in your browser.
With the values currently entered, the result is $30.00 — overhead per direct labor hour. It also shows overhead share of labor cost, overhead on this job, and direct labor hours.
How to use the Job costing overhead rate
- Replace the example values with your own numbers.
- Review the result and supporting figures as they update automatically.
- Check the formula and assumptions before using the estimate for a decision.
Inputs used
- Annual overhead
- Direct labor hours — entered in hrs
- Direct labor cost
- Hours on this job — entered in hrs
Job costing overhead rate formula
Hour rate = annual overhead ÷ direct labor hours. Labor-cost rate = annual overhead ÷ direct labor cost. Job overhead = hour rate × hours on the job.
Assumptions
- FAR 31.203 groups indirect costs so they can use a base common to the cost objectives. Items in that base bear a pro rata share of the grouping. This page divides the overhead you type by the labor hours you type, and again by the labor cost you type.
- The same section treats the base period as the fiscal year when the CAS period rules do not apply. Fringe, G&A on another base, and costs you leave out of the pool stay out.
Verify the inputs
Authoritative sources
These sources explain the definitions, factors, or rules behind this tool. Their geographic scope is shown because an official source for one country is not automatically valid somewhere else.
Sources do not endorse Calculum. Check the source date, scope, and your own documents before making a financial, tax, insurance, or reporting decision.
Practical guide
Job costing overhead rate example and edge cases
FAR 31.203 says that after direct costs are charged, the remaining indirect costs are grouped and allocated with a base common to the cost objectives. Items in that base bear a pro rata share of the grouping. This page divides the overhead you type by direct labor hours, and again by direct labor cost.
Example: 180,000 of overhead on 6,000 labor hours
Annual overhead is 180,000. Direct labor is 6,000 hours and 240,000 of cost. This job uses 40 of those hours in the same year.
- Annual overhead
- 180,000
- Direct labor hours
- 6,000 hrs
- Direct labor cost
- 240,000
- Hours on this job
- 40 hrs
Calculated result$30.00overhead per direct labor hour
Each labor hour carries 30 of overhead. That is 75 percent of the labor cost. Forty hours on this job pick up 1,200. Profit on the finished job is the project profit calculator.
Example results use the default display profile. The calculator above follows your selected country and units.
How to read the result
- Read the hourly rate first. The percent of labor cost is the same pool on a dollar base. They match the wage only when the labor cost and the hours describe the same crew.
- The job line is the hourly rate times the hours on that job. It is a share of the pool. The price you charge is a choice you make after you see it.
Edge cases worth checking
Fringe benefits are a second pool
This page uses one overhead number. Health insurance and payroll taxes on direct labor can be their own pool, with labor cost as the base. Add them into overhead only if that is the pool you mean.
The job used a different year
FAR 31.203 uses a base period, normally the fiscal year. Hours from last year and overhead from this year do not belong in the same rate.
What changes the result most
Annual overhead
Use a current amount for annual overhead. Include fees or recurring costs that belong in the same figure.
Direct labor hours
Change direct labor hours on its own first. This shows how strongly it affects the answer.
Direct labor cost
Use a current amount for direct labor cost. Include fees or recurring costs that belong in the same figure.
Try a different scenario
Small changes show whether the answer is stable or sensitive.
Annual overhead: 25% lower
135,000$22.50overhead per direct labor hour
Annual overhead: 25% higher
225,000$37.50overhead per direct labor hour
Direct labor hours: 25% higher
7,500 hrs$24.00overhead per direct labor hour
Common mistakes
Check annual overhead
FAR 31.203 groups indirect costs so they can use a base common to the cost objectives. Items in that base bear a pro rata share of the grouping. This page divides the overhead you type by the labor hours you type, and again by the labor cost you type. Make sure this matches the number you enter.
Keep hours on this job consistent
The same section treats the base period as the fiscal year when the CAS period rules do not apply. Fringe, G&A on another base, and costs you leave out of the pool stay out. Use the same units and time period throughout the calculation.
Do not rely on one job costing overhead rate scenario
Run a cautious case and an optimistic case. The range is often more useful than one exact-looking number.
Use this result well
What overhead does each direct labor hour carry for the year you type?
It does not replace a quote, contract, accountant, or local employment guidance.