Definition Of Overheads:

Overheads are costs which do not relate solely to the cost units and must be shared equitably between them.

Examples of overheads are indirect material cost, indirect labour and indirect expenses.

Types of Overheads

Description

Production overheads

Relates to those indirect costs incurred to produce the products

Examples: indirect materials, indirect wages, factory rent and factory insurance and factory depreciation of plant and machinery

Administration overheads

Relates to those costs on office/administrative supports.

Examples: office salaries, stationery, office rent, office maintenance, audit fees

Selling overheads

Relates to those costs on the selling of the products

Examples like salesmen’s salaries, commissions, incentives and traveling expenses.