The overhead rate is the amount your business spends on making a product or providing services to its customers.

A company uses the overhead rate to allocate its indirect costs of production to products.

**Formula to calculate the overhead rate.**

**Example:**

In a certain financial period, ABC Company had total indirect costs of $100,000 and it incurred $50,000 of direct labor costs, determine the overhead rate.

Therefore, the overhead rate of ABC company is 2:1.