The material burden rate is the sum of a manufacturer's direct material expenses. It is also known as indirect production cost, factory overhead and burden. In a basic business the material burden rate is normally the sum of direct materials, cost of factory equipment and packaging. Manufacturing cost is often reported in the cost of the product sold and the cost of inventory units. This may be a percentage of the product price or hourly cost rate based on machine hours.
Things You'll Need
- Spreadsheet software
Develop your business's projected material expense forecast for the next year. Include all expenses with any expected changes such as inflation or increases and decreases in orders. If you have a business with multiple divisions, separate the material costs to find individual burden rates for each.
Enter your gathered information into a computer spreadsheet application, or write it out by hand. Label separate columns for each expense and organize the rows by month. If your material costs vary based on the time of year (for example if your product is in higher demand in the winter), this will keep the information organized.
Add up all the material expenses. Calculate the total at the bottom of each column to find each expense's gross, then add up all the expenses.
Calculate the total production for which you want the material burden rate. This could be labor, equipment capacity or the production hours. Add up the total for the entire year. For example, let's say you have a machine that molds doorknobs and can make 50 doorknobs an hour. If you run the machine for 10 hours a day, five days a week, you will make 130,000 doorknobs in the next year. Your production total of doorknobs is 130,000.
Find your burden rate. Divide your total material expenses by the year's product total, production hours or labor. If your total material expenses came to $350,000 at the doorknob factory, then 350,000/130,000= 2.69. This means that to cover your material costs you will need to make at least $2.69 off of each doorknob.