CVP Industries recorded the below transactions for the month just been ended. PKR 700,000 in raw materials were purchased on account. 600,000 in raw materials were used in production. Of this amount, 520,000 was for direct materials and the remainder was for indirect materials. Labor wages of PKR 280,000 were paid in cash. Of this amount, PKR 200,000 was for direct labor and the remainder was for indirect labor. Depreciation of PKR 175,000 incurred on factory equipment.

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Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit.  Overhead expenses depend upon the nature of the business operations.