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Overhead Application Rate

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What is the definition of Overhead Application Rate?
A standard rate used to allocate overhead costs to specific activities, typically measured in labor or machine hours.
Using Overhead Application Rate in an Example

In a manufacturing company, the overhead application rate might be calculated based on the total machine hours. For instance, if the total overhead costs are $100,000 and the total machine hours are 50,000 hours, the overhead application rate would be $2 per machine hour. This rate is then used to assign overhead costs to products based on the number of machine hours required to produce each product.

Using Overhead Application Rate in a sentence

The finance department updated the overhead application rate to reflect the increased utility costs, ensuring more accurate product costing.

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