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Production & capacity

Overhead Allocation Calculator

Convert your annual overhead into the per-unit number the product calculators need — and see what happens if sales come in short.

Your numbers

Use your own costs — the defaults are only a starting point.

Monthly overhead
Annual costs and volume

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Overhead per unit: $3.90
10 input fields available.

How this calculator works

Overhead is everything the business needs that is not attributable to one product: workspace, software, insurance, marketing, subscriptions. It is real money, and it has to come out of the products you sell.

Total it once a year, divide by the units you realistically expect to sell, and use the result in every product calculation.

The formula

  1. Annual overhead = (sum of monthly costs × 12) + annual one-off costs
  2. Overhead per unit = annual overhead ÷ expected annual units
  3. Overhead per billable hour = annual overhead ÷ billable hours a year
  4. Under-recovery = annual overhead − (overhead per unit × units actually sold)

What to watch for

  • Be conservative with the unit estimate. Overhead per unit falls as the denominator rises, so an optimistic sales forecast produces a comfortable-looking allocation that quietly under-recovers.
  • The 30%-short figure is the one to use if you are unsure. It is a far cheaper mistake to over-allocate overhead than to under-allocate it.
  • Workspace belongs here even if you work at home. The space has value; charging the business nothing for it means your prices do not reflect what the business actually consumes.
  • Recalculate annually, and after any change in premises, tooling or sales volume.

Common mistakes

  • Setting workspace to zero because the business runs from a spare room.
  • Using an aspirational sales number as the denominator.
  • Double-counting: machine consumables belong in the machine rate, not here.
  • Allocating per unit when you sell products at wildly different price points — allocate by hour instead.

Frequently asked questions

What counts as overhead?

Anything the business needs that you cannot attribute to a single product: workspace, insurance, software, marketing, accounting, subscriptions, utilities. If a cost only exists because you made a particular unit — materials, packaging, the machine time for that job — it is a direct cost and belongs in the product calculation instead.

How do I allocate overhead per product?

Total your annual overhead and divide by the number of units you realistically expect to sell that year. If overhead is $5,220 and you expect 1,200 units, that is $4.35 per item. Enter that figure in the overhead field of whichever product calculator you use.

Should I allocate by unit or by hour?

By unit is simpler and works when your products are broadly similar. If you sell a $6 keychain and a $400 sign, per-unit allocation charges them the same overhead, which distorts both. In that case allocate per billable hour, so a product that takes ten times as long carries ten times the overhead.

What if I sell fewer units than I expected?

You under-recover, and the shortfall comes out of your profit. That is exactly why the calculator also shows the per-unit figure at 30% below your estimate. If you are uncertain, price using the pessimistic number — over-recovering overhead is a much cheaper mistake than the alternative.