Overhead costs, also known as indirect costs, are expenses that cannot be directly attributed to the production of specific goods or services.
In other words, Overhead cost is an aggregate of indirect material, indirect wages and indirect expenses.
- They support the overall operations of a business but are not tied directly to a single product, service, or activity.
- They are essential for running the business and maintaining its infrastructure, but they do not directly generate revenue.
Features of Overhead Cost:
- The sum of indirect material, indirect wages and indirect expenses is called as overhead cost.
- It can be variable or fixed or semi-variable.
- It is essential for overall business functioning.
- It cannot be directly traced to specific products or services.
Importance of Overhead Cost:
- Serves as the base of budgeting.
- Useful for calculating the cost of output or unit.
- Helpful in cost control.
- Helpful in price fixation.
- Assists in allocation of costs.
