How do you find fixed overhead? What is the formula?
Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.
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Meaning
Overheads refers to the total cost of indirect materials, indirect labour and indirect expenses. Indirect cost are those cost which do not directly attributes to creating a product or service. In other words, overheads are the expenses that are incurred to support the business, not being directly involved in production of goods or services.
Examples of overheads are:- depreciation, maintenance, lighting, stationery, printing etc.
Fixed overheads are those overheads that tend to remain fixed for all volume of production within a certain range. It refers to the constant expenditure incurred during a period regardless of the volume of production during that period. Even if the production of goods are totally stopped in a particular period, this constant amount of expenditure will continue to be incurred wholly or partially. This cost is also known as Period cost. The fixed cost per unit of production varies with volume.
Example of fixed overhead:- Interest on capital, Machinery insurance, Depreciation on plant and building, Audit fee, Rent of building etc.
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