The base must reflect what actually drives the overhead being spread.
The arithmetic
Overhead recovery rate budgeted overhead ÷ budgeted quantity of the chosen base Set before the year starts, so a quote can be given Worked Why the base matters, not just the arithmetic A workshop is heavily labour-intensive (skilled joiners) but owns one expensive CNC machine used on only a few jobs. If overhead is spread by MACHINE HOURS, jobs that barely touch the CNC machine are charged almost no overhead — even if they consume weeks of skilled labour, supervision and workshop space. If overhead is spread by LABOUR HOURS instead, every job carries overhead in proportion to the skilled time it actually uses, which is what is really driving rent, supervision and most other costs here. The CNC-heavy jobs would then be systematically UNDER-costed on a labour-hours base, and OVER-costed on the wrong machine-hours base relative to labour-only jobs. ✓ The base is a judgement about what CAUSES the overhead, not a default formula — get it wrong and every job cost is quietly distorted, even though the total overhead recovered across all jobs can still add up correctly.