Manufacturing Cost Accounting & Finance worked example

Overhead Absorption at 68% capacity utilization: a worked example

Here is what the math looks like when conditions slip. We hold every other input steady and drop capacity utilization to 68%, then walk the calculation through step by step. Estimates the overhead absorbed into production from machine hours, a predetermined rate, and capacity utilization.

The inputs for this scenario

  • Machine Hours Run: 4,000 machine-hrs (held at the documented default)
  • Overhead Rate per Hour: 65 $/machine-hr (held at the documented default)
  • Capacity Utilization: 68 % (the input this scenario stresses; the baseline uses 95)
  • Fixed Overhead Floor: 10,000 $ (held at the documented default)

Working through the calculation

  • The calculation starts from the formula this tool documents: Absorbed overhead = machine hours x rate per hour x utilization% + fixed floor.
  • Total overhead absorption cost works out to 186,800 $ at these inputs, and this is the headline figure for the scenario.
  • Overhead absorption cost per unit works out to 46.7 $ / piece at these inputs.
  • Variable overhead absorption cost works out to 176,800 $ at these inputs.
  • Fixed overhead absorption adder works out to 10,000 $ at these inputs.

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 27.32% below the baseline at 186,800 $.
  • The practical read: the gap between this scenario and the baseline is entirely attributable to capacity utilization, so recovering it is worth quantifying in dollars before considering equipment or staffing changes. It assumes a single machine-hour driver; plants with mixed labor-intensive and capital-intensive cells often need activity-based pools to avoid cross-subsidizing products.

Results at a glance

  • Total overhead absorption cost: 186,800 $ (headline result)
  • Overhead absorption cost per unit: 46.7 $ / piece
  • Variable overhead absorption cost: 176,800 $
  • Fixed overhead absorption adder: 10,000 $

Run it with your numbers

  • To rerun this with your own numbers, open the live Overhead Absorption calculator, set capacity utilization to your actual value, and adjust the remaining inputs to match your operation.

Last reviewed 2026-05-12.