Divide the allocation base value by the number of units produced. This provides the amount of manufacturing overhead attached to each unit of the allocation base. For instance, if a factory has $2,000 in overhead costs and 500 direct labor hours, there is an overhead of $4 ($2,000 / 500) attached to each labor hour.

In practice, the math is more complicated, but in principal, the equation is as follows: Manufacturing Cost = (Raw materials + Labor cost + Allocated manufacturing overhead)/number of units The raw materials for one widget may be $42.50. The direct labor costs may equate to $10 per widget, with many chairs produced per hour.