For instance, if the manufacturer estimates $10,000 in overhead costs with 20,000 machine hours, the predetermined overhead rate is 50 cents per unit.

Suppose that the total equals $135,000. Divide this amount by 45,000 labor hours, to calculate the overhead rate. In this example, the rate works out to $3 per labor hour.

Overhead costs are expenses tied to things other than the production of goods or services. Here's how to calculate overhead.