Fixed-overhead rate

Fixed-overhead rate converts total budgeted fixed manufacturing overhead into a per-unit charge under absorption costing. The rate is calculated by dividing budgeted fixed overhead by a planned production volume.

Also known asFOH rate

ByHoang TruongUpdated June 30, 2026

FrameworkAbsorption costing

See it move

Loading infographic...

The tree diagram derives a fixed-overhead rate of €6 per unit by dividing budgeted fixed overhead of €90,000 by a denominator volume of 15,000 units, with a division operator between the two branches. The rate is a budgeted figure and will absorb overhead accurately only if actual output equals the denominator volume; any deviation produces a volume variance that is a direct consequence of this division.

Where it fits

SubjectCost AccountingAdvancedTopicAbsorption & Variable CostingAdvanced

The formula

LaTeX

\text{FOR} = \frac{\text{Budgeted Fixed Overhead}}{\text{Budgeted Volume}}

Variables

$B u d g e t e d F i x e d O v er h e a d$: Total planned fixed manufacturing overhead for the period (€)
$B u d g e t e d V o l u m e$: Planned production level used as the denominator (units, hours, etc.)

Applied fixed overhead = Fixed Overhead Rate × actual units (or hours) produced; difference from actual is the fixed-overhead variance