Burden Rate
What is Burden Rate?
The burden rate is the rate at which indirect costs are applied to direct costs of inventory or labor.
![br1](https://seeaccountingnow.online/wp-content/uploads/2021/08/br1.jpg)
How it Works
Manufacturers need to monitor the cost of their output.
![br2](https://seeaccountingnow.online/wp-content/uploads/2021/08/br2.jpg)
If using the full costing method, they determine all the costs of production.
![br3](https://seeaccountingnow.online/wp-content/uploads/2021/08/br3.jpg)
Some costs are direct costs, such as direct labor.
![br4](https://seeaccountingnow.online/wp-content/uploads/2021/08/br4.jpg)
Direct labor costs can be attributed directly to unit cost
![br5](https://seeaccountingnow.online/wp-content/uploads/2021/08/br5.jpg)
For example, it will take a certain number of employee hours to produce a batch of goods.
![br6](https://seeaccountingnow.online/wp-content/uploads/2021/08/br6.jpg)
Employees working on a production line will be paid a certain rate per hour.
![br7](https://seeaccountingnow.online/wp-content/uploads/2021/08/br7.jpg)
With this information, you can calculate the direct labor cost component.
![br8](https://seeaccountingnow.online/wp-content/uploads/2021/08/br8.jpg)
So far, though, this costing only includes hourly labor rates paid for direct hourly labor input.
![br9](https://seeaccountingnow.online/wp-content/uploads/2021/08/br9.jpg)
Employees will receive other benefits whether they are working or not.
![br10](https://seeaccountingnow.online/wp-content/uploads/2021/08/br10.jpg)
With full costing, these benefits need to be added to the hourly pay rate.
![br11](https://seeaccountingnow.online/wp-content/uploads/2021/08/br11.jpg)
To do this, manufacturers add a burden rate to direct labor costs.
![br12](https://seeaccountingnow.online/wp-content/uploads/2021/08/br12.jpg)
Labor burden costs are calculated by first finding average burden cost per hour.
![br13](https://seeaccountingnow.online/wp-content/uploads/2021/08/br13.jpg)
Then dividing hourly rates by average burden cost per hour.
![br14](https://seeaccountingnow.online/wp-content/uploads/2021/08/br14.jpg)
This is expressed as a dollar amount per $1 of wages.
![br15](https://seeaccountingnow.online/wp-content/uploads/2021/08/br15.jpg)
Once calculated, this burden rate can be applied to direct labor costs for batch costings.
![br16](https://seeaccountingnow.online/wp-content/uploads/2021/08/br16.jpg)
The total will then show fully burdened costs.
![br17](https://seeaccountingnow.online/wp-content/uploads/2021/08/br17.jpg)