Overheads

In cost accounting, overheads are those indirect expenses which are used for operating production. In overheads we can not include direct material, direct labor and direct expenses. Rent of plant, electricity bill of factory, salary of office employees, taxes, telephone bills, supplies, repairs and legal fees are overheads.

Cost Accounting Standards 3 (CAS - 3 )  define overhead with following way

Overheads comprise of indirect materials, indirect employee costs and indirect expenses which are not directly identifiable or allocable to a cost object in an economically feasible way.

We can classify overheads with following ways:


1.Functional classification

a) Factory overheads
b) Office overheads
c) Selling and distribution overheads
d) Research and development overheads

2.Classification on the nature of expenditure

a) Fixed expenses
b) Variable expenses
c) Semi Variable expenses