Business Overhead Cost Calculator
Calculate indirect overhead absorption rates per billable labor hour and overhead percentage on direct payroll to price bids profitably.
Overhead Absorption Rate Formula
Overhead Rate Per Direct Hour = Total Annual Overhead / Total Annual Direct Labor Hours; Overhead % on Labor = (Total Overhead / Direct Labor Cost) × 100- Indirect Overhead: Costs not directly billed to clients (admin salaries, rent, corporate insurance, IT systems, bookkeeping).
- Direct Labor: Billable technician, carpenter, designer, or consultant hours sold directly on customer projects.
Step-by-Step Worked Example
Calculation Steps:
- Annual Overhead = $10,000 × 12 = $120,000
- Overhead Rate Per Direct Hour = $120,000 / 4,000 hrs = $30.00 / billable hour
- Overhead Percentage on Labor Cost = ($120,000 / $160,000) × 100 = 75.0%
How to Use This Calculator
- 1Enter indirect administrative, facility, insurance, and IT operating expenses.
- 2Input total billable client labor hours and total direct labor wages per year.
Assumptions & Limitations
- Direct labor hours represent client-billable time, not total paid employee hours.
- Overhead is allocated uniformly across all billable hours.
Frequently Asked Questions
Why must businesses calculate an overhead rate per hour?
If you only charge clients for an employee's hourly wage, your company will lose money on every job because non-billable overhead like rent, bookkeeping, and software remains unpaid.
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