Explain Overhead cost

Question

Give a brief introduction of the term ‘Overhead cost’? And also write down its various ways to classify it?

Answer 1

Overhead Cost is the sum total of all indirect costs that consists of indirect material cost, indirect labor cost, and indirect expenditures. These costs are termed as indirect costs as they can’t be featured to any particular business activity. Example: insurance, Rent and so on.

The various means in that the overheads can be classified are illustrated below:

Element wise Classification:

i) Indirect labor
ii) Indirect material
iii) Indirect expenditures

Function wise:

i) Administration Overheads
ii) Factory Overheads
iii) Selling and Distribution Overheads

Variability wise:

i) Variable Overheads
ii) Fixed Overheads
iii) Semi-Variable Overheads

Controllability wise:

i) Uncontrollable Overheads
ii) Controllable Overheads

Normality wise:

i) Abnormal Overheads
ii) Normal Overheads