Manufacturing Cost Accounting & Finance worked example

Overhead Absorption at 99% capacity utilization: a worked example

Push capacity utilization up to 99% and the picture changes. This example computes every intermediate figure at that operating point. A plant controller checking how much factory overhead a work center absorbs at a given activity level.

The inputs for this scenario

  • Machine Hours Run: 4,000 machine-hrs (unchanged)
  • Overhead Rate per Hour: 65 $/machine-hr (unchanged)
  • Capacity Utilization: 99 % (raised for this scenario; the documented default is 95)
  • Fixed Overhead Floor: 10,000 $ (unchanged)

Working through the calculation

  • Applying the documented formula (Absorbed overhead = machine hours x rate per hour x utilization% + fixed floor) to the inputs above produces each figure below.
  • At this operating point the engine returns 267,400 $ for total overhead absorption cost, the number this scenario is built around.
  • At this operating point the engine returns 66.85 $ / piece for overhead absorption cost per unit.
  • At this operating point the engine returns 257,400 $ for variable overhead absorption cost.
  • At this operating point the engine returns 10,000 $ for fixed overhead absorption adder.

How this compares with the baseline

  • Against the tool's baseline example, where capacity utilization sits at 95% and the headline result is 257,000 $, this scenario comes in 4.05% above the baseline at 267,400 $.
  • It computes the total overhead absorbed into production from machine hours and a per-hour rate, scaled by utilization, plus a fixed overhead floor. The value of this scenario is the size of the gap it exposes: that gap, priced out over a year, is the budget you can justify spending to close it.

Results at a glance

  • Total overhead absorption cost: 267,400 $ (headline result)
  • Overhead absorption cost per unit: 66.85 $ / piece
  • Variable overhead absorption cost: 257,400 $
  • Fixed overhead absorption adder: 10,000 $

Run it with your numbers

  • Every input above is editable in the live Overhead Absorption calculator, which recalculates instantly and can be shared with the inputs intact.

Last reviewed 2026-05-12.