Assume a machine producing canisters produces 50 canisters a hour and runs 12 hours a day, six days a week. The total canister produced in a year is 50*12*6*52 weeks = 187,200 canisters.
Assume the total procurement cost of materials for the accounting period at $25,000. Assume total administrative costs at $5,000 per month, and packaging costs at $2 per canister. Assume the depreciation of factory equipment at $10,000 for the year.
Total material cost is ($25,000) + ($5,000 x 12 months) + ($2 x 187,200 canisters) = $25,000 + $60,000+ $374,400 = $459,400
Calculate the material burden rate for 187,200 canisters by dividing the material cost by total number of canisters = $459,400/187,200 = $2.45. This means that to cover the material costs at the specified product schedule, each unit of canister should make $2.45
The burden rate provides a complete picture of the costs associated with running a business. A high burden rate, for instance, explains why some things seemingly cheap to produce turn out very expensive.