overhead rate

In finance, "overhead" refers to the ongoing costs of running a business that are not directly tied to producing a specific product or service. These are often called indirect costs or expenses.12

Managerial accounting uses cost finding to estimate these expenses. For example, in a factory, direct costs like labor and materials are traceable to specific products. However, overhead costs, such as a supervisor's salary, are harder to assign directly to individual jobs. These costs are typically allocated to products using "overhead rates," which are calculated based on the total overhead cost and a measure of production volume, like machine hours or labor hours.3

These overhead rates help businesses understand the full cost of production and can be used for budgeting, cost analysis, and performance reporting.3