Overhead Allocation Calculator

Formula

The formula to calculate the overhead cost per unit (OCP) is:

\[ OCP = \frac{TO}{TU} \]

Where:

$ OCP $ is the overhead cost per unit ($).
$ TO $ is the total overhead costs ($).
$ TU $ is the total units produced.

Example

Let's say the total overhead costs are $10,000, and the total units produced are 500. Using the formula:

\[ OCP = \frac{10000}{500} \]

We get:

\[ OCP = 20 \]

So, the overhead cost per unit ($ OCP $) is $20.

What is Overhead Allocation?

Overhead allocation is the process of distributing indirect costs, known as overheads, to specific cost objects like products, services, or departments. These costs are not directly traceable to a product but are necessary for the production process. Examples of overhead costs include rent, utilities, and salaries of administrative staff. Proper overhead allocation is crucial for accurate product costing, pricing decisions, and profitability analysis.