Recover overhead from the hours you can sell

Define what belongs in the pool

Indirect payroll can include estimating, supervision and office work that is not assigned directly to jobs. Building occupancy, insurance, software and shared utilities may also belong here. Reconcile the list to your books instead of treating the example categories as an accounting standard. Direct machine ownership, direct operators and machine power belong outside this pool if the work-center calculation already recovers them. Put each expense in one place so the finished selling rate does not include rent or supervision twice.

Match the denominator to those expenses

Ten thousand available hours might represent five work centers staffed for 2,000 hours each. It should not be the capacity of one machine if the expense pool supports the whole shop. Billable utilization is the fraction of those hours that produces recovered job revenue under your chosen convention. If setup is billed and included in the available-hour base, count it consistently in sold hours. Do not divide the same overhead once by labor hours and again by machine hours unless you have deliberately split the expense pool.

Keep recovery separate from the selling decision

The calculator produces an overhead component only. Add the appropriate direct labor, machine ownership, consumables and return to build a full rate, then check it against real completed jobs. Lower utilization raises the amount each sold hour must recover, but increasing the rate cannot create demand by itself. Review unsold capacity, scheduling losses and avoidable expense alongside pricing. Annual totals also hide cash timing: a quarterly insurance bill or an equipment repair may still need a reserve even when the average hourly allocation looks adequate.

• Combine burden with one machine’s direct costs