Overheads

The total of all indirect costs are called overhead expenditure

CLASSIFICATION OF OVERHEADS

• Overheads can be classified according to function:
  
• Production overheads
  
• Administrative overheads
  
• Selling overheads
  
• Distribution overheads
  
• Financial overheads

PRODUCTION OVERHEADS

These are indirect costs incurred in the factory – to convert raw materials into finished goods Eg: rent and rates of factory / Depreciation of plant or factory building / Wages and salaries of non-productive personnel in the production dept. eg. Factory inspectors, cleaners wage

ADMINISTRATIVE OVERHEADS

These are indirect costs incurred in controlling, management and administration of the business. eg: depreciation of office building / Office salaries / Administration staff wages

SELLING OVERHEAD

These are the indirect costs incurred in promoting goods and services and to retain customers Eg: Rent and rates of show rooms / Advertisement, promotion and market research

DISTRIBUTION OVERHEADS

These are indirect cost incurred in transferring finished products to consumers Eg: wages of packers, drivers, dispatch clerks