Overhead Cost Center Rate Build-Up Worksheet
A blended shop overhead rate is easy to build and easy to get wrong. Costs differ widely by cost center: a five-axis mill carries depreciation and tooling that a bench assembly area never sees. This worksheet builds the rate center by center, so quotes and standard costs reflect where the cost really sits.
| Cost center | Type | Depreciation | Indirect labor | Facility and utilities | Tooling and consumables | Allocated support cost | Total overhead | Productive hours per year | Overhead rate per hour | |
|---|---|---|---|---|---|---|---|---|---|---|
$283,000 | $54 | |||||||||
$185,000 | $40 | |||||||||
$132,000 | $23 | |||||||||
$67,000 | $22 | |||||||||
$83,000 | $13 | |||||||||
$72,000 | $30 |
Replace the sample centers with your own. Allocate support cost by a driver you can defend, such as headcount, floor area, machine count or work orders. Use productive hours from the last 12 months of job labor or machine history, not 2080 per machine. A single blended rate hides real differences between centers; compare the spread to decide whether separate rates are worth keeping on routings.
Compare absorbed vs actual overhead
Optional: we can review how your ERP absorbs overhead on routings and flag where rates have drifted.
Optional. The tool and every export work without this. No spam.
How to use it
List each cost center or work center. For each, enter annual depreciation of its equipment, the loaded cost of indirect labor working there, its share of facility and utilities, tooling and consumables, and an allocation of support departments. Enter the productive hours for the year. The worksheet totals overhead per center and divides by hours to give an overhead rate. Add or delete rows and export to Excel when finished.
Choosing allocation drivers
Direct costs such as machine depreciation and tooling can be assigned straight to a center. Shared costs need a driver: floor area for rent and utilities, headcount for HR and supervision, machine count or maintenance work orders for maintenance, inspection hours for quality. Whatever you pick, apply it consistently year to year. The direct method used here allocates support cost straight to production centers; a step-down method also allocates between support departments and is worth using when service departments serve each other heavily.
- Floor area for rent, heat and property tax.
- Headcount for supervision, HR and safety.
- Work orders or machine count for maintenance and programming.
Reading the rates
The blended rate is total overhead divided by total productive hours. Compare it to each center's own rate. In the sample data milling runs well above the blended number while assembly sits below it, so a blended rate would overprice assembly-heavy work and underprice machining-heavy work, quietly steering you toward the wrong jobs. The spread output gives a quick signal of how much that distortion could be.
ERP and standard cost notes
In most ERP systems the overhead rate lives on the work center or resource group, as a per-hour or percent-of-labor rate, and it drives absorbed overhead on routings. Absorbed overhead rarely equals actual spend, so schedule a periodic review of under or over absorption and adjust the rates when the gap persists. Keep the worksheet as supporting documentation for auditors and for the next rate review.
Frequently Asked Questions
Should I use machine hours or direct labor hours?
Use machine hours in highly automated centers where cost follows the machine, and labor hours where people drive the work, such as assembly or hand finishing. Whichever you pick should be the measure that best explains why the overhead is incurred in that center.
What is the difference between direct and step-down allocation?
Direct allocation assigns support department cost only to production centers. Step-down allocates a service department to other service departments in sequence before reaching production. Step-down is more accurate when, for example, maintenance serves the quality lab, but direct is simpler and usually fine for small shops.
How often should overhead rates be updated?
At least annually, and sooner after a large equipment purchase, lease change or sustained shift in volume. Comparing absorbed overhead to actual overhead each quarter tells you when the rates have drifted far enough to need revisiting.
Why use productive hours instead of available hours?
Overhead has to be recovered over hours that produce revenue. Dividing by available hours understates the rate and leaves unrecovered cost in the income statement. Use realistic productive hours after setup, maintenance, breaks and idle time.
Netray can connect to your ERP's cost and work center data so actual overhead, hours and absorption are compared against these rates automatically.
Related Tools
Required Shop Rate for Target Profit Calculator
Back into the hourly shop rate a job shop must charge from payroll, fringe, overhead, billable utilization and a net profit target.
Costing & FinanceQuote Win Rate and Margin Log Worksheet
Log quotes with value, estimated cost and outcome to calculate hit rate by count and by dollars and the margin you win versus the margin you quote.
Costing & FinanceJob Shop Costing Maturity Assessment
Score how reliably your shop knows its cost, from burden and machine rates to estimate feedback, and get a prioritized list of improvements.
Industry TemplatesPost-Job Estimate vs Actual Review Template
A fill-in job closeout review that records estimate versus actual for labor, material and outside processing, plus causes and estimating corrections.
More Costing & Finance tools
See all- Manufacturing KPI Formula and Definitions Reference
- Manufacturing Cost Variance Types Reference
- Price, Volume and Cost Margin Variance Calculator
- Month End Reporting Readiness Checklist for Manufacturers
- OEE Improvement Value Calculator
- Improve OEE vs Buy a New Machine Calculator
- Six Sigma Project Savings Tracker Worksheet
- Should Cost Model Worksheet for Machined Parts
- Quote Assumptions and Exclusions Template
Keep exploring
Free tools
- Machine Hour Rate Build-Up WorksheetCalculate a fully loaded machine hour rate per machine from depreciation, power, maintenance, tooling and floor space.
- Standard Cost Build-Up WorksheetBuild a part standard cost line by line from material, labor, machine, subcontract and overhead, with yield loss applied to each line.
- Manufacturing Overhead Rate CalculatorCalculate a predetermined manufacturing overhead rate from your indirect costs and an allocation base, then apply it to a job to see overhead cost.