Overhead allocation check: which formula correctly expresses the overhead cost per unit in terms of the overhead ratio and the direct labour cost per unit in construction estimating and cost accounting?

Introduction / Context:Distributing indirect (overhead) costs to products or activities often uses a chosen base—commonly direct labour cost—through an overhead ratio (or rate). Knowing the correct relationship is essential for accurate unit costing, pricing, and bid preparation in construction and manufacturing settings.

Given Data / Assumptions:

• Overhead ratio is defined relative to direct labour cost (e.g., Overhead ratio = Total overhead / Total direct labour cost).
• Direct labour cost per unit is known from the estimate or job-costing records.
• We want the overhead component per unit produced or installed.

Concept / Approach:When the allocation base is direct labour cost, overhead is applied proportionally. If OHR = Overhead / Direct labour, then overhead assigned to a unit with direct labour cost DL_u equals OHR * DL_u. Choosing a different base (e.g., machine hours, direct materials) would change the formula, but within this context the correct relationship uses direct labour cost per unit.

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