Overhead Rate
Content
Definition
The Overhead Rate is the ratio of overhead costs to the revenue or labor hours, used to allocate overhead to products or projects.
Usage and Context
Frequently asked questions
- What is the overhead rate? The overhead rate is a percentage or ratio that compares overhead costs to a specific base, such as revenue or labor hours, to allocate indirect costs to products or projects.
- What is the overhead cost ratio? The overhead cost ratio is a measure that compares overhead costs to total revenue or another relevant base, indicating how much overhead is incurred relative to the base measure.
- What is overhead rate in project management? In project management, the overhead rate is used to allocate indirect costs, like administrative expenses, to specific projects based on a predetermined ratio or percentage.
Benefits
Using an overhead rate ensures accurate cost allocation, improves pricing decisions, enhances budget management, and helps identify cost-saving opportunities.
Conclusion
The Overhead Rate is a ratio used to allocate overhead costs to products or projects, ensuring accurate costing and effective budget management.
