How to Calculate the Over & Under Applied Manufacturing Overhead

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Applied manufacturing overhead is a managerial accounting calculation that helps you determine how efficient you have been using your overhead. The calculation requires you to make estimates on your production for the beginning of the period and then compare them to actual costs and production at the end of the period. If your amount is positive, then you used more overhead than you estimated. If your amount is negative, then you used less overhead than you estimated.

Count Overhead Costs

Gather together your estimation for overhead costs and units produced for the period. Then find you actual units produced and your actual overhead costs. For example, assume you estimate $20,000 of overhead costs to produce 10,000 units. Then, you find it cost you $25,000 to produce 12,000 units.

Divide estimated costs by estimated units produced to find your estimated overhead rate. In the example, $20,000 divided by 10,000 units equals $2 a unit.

Multiply your estimated overhead rate by your actual units produced to find total manufacturing overhead applied. In the example, $2 a unit times 12,000 units equals $24,000.

Subtract your total manufacturing overhead applied from your actual overhead costs. In the example, $25,000 minus $24,000 equals $1,000. If the number is positive, it is under applied. If the number is negative, it is over applied. So the answer in the example is $1,000 under applied.

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