Overhead Cost Flashcards
Front
Back
What’s overhead cost?
Overhead cost refers to indirect expenses of running a business. These expenses help running the business but not directly linked to the creation of any product or services.they are still necessary as they provide critical support for the profit-making.
Why overhead cost calculation is important?
1-its important for budgeting 2- determining how much the business should charge for a service or product to make a profit.
What are the overhead costs?
Rent, utilities, insurance, payroll, legal expenses, depreciation, amortisation, property taxes, etc
How do you calculate overhead cost?
To calculate overhead cost of the business, You need to categorise each overhead expense of your business for a specific time period, typically by breaking them down by month.once categorised, add all the overhead cost for the accounting period to get the total overhead cost.Now, you are able to tell the overhead percentage as a percentage of sales.
What does Overhead percentage tell you?
It tells you how much your business spends on overhead and how much is spent making a product or services.
How do you calculate overhead rate?
Divide the total overhead costs of the business in a month by its monthly sales. Multiply this number by hundred to get your overhead rate.If overhead is 10,000 revenue is 50 K divided by is equal to .2 or 20% which means the business spends $.20 on overheads for every dollar that it makes.
How do you allocate overhead cost?
To allocate the overhead cost first need to calculate the overhead allocation rate. This is done by dividing the total overhead by the number of direct labourers. Examples; if the total overhead for making a product is 500 and the total direct labour hours 150 hours the overhead allocation rate is $3.33.This means for every hour need to make a product, you need to look at $3.33 worth of overhead to the product.
