Match The Following Overhead Costs With Their Source Documents. (2024)

FAQs

Which are the overhead costs? ›

Overhead costs are those that are not directly related to the production of goods or services, but are necessary for the operation of a business. Examples of overhead costs include rent, utilities, insurance, legal fees, office supplies, advertising, payroll, and accounting fees.

Accounting fees, advertising, insurance, interest, legal fees, labour costs, rent, repairs, supplies, taxes, phone bills, travel expenses, and utilities are examples of overhead costs. Indirect expenses and fixed costs, two accounting concepts, are frequently linked to overheads.

First, the overhead is collected from different source documents, for different items of overhead expenses, the documents which are used for the collection, allocation and apportionment of overheads are standing order numbers, departmental distribution summary, journal, invoice and payroll.

To calculate the proportion of overhead costs compared to sales, divide the monthly overhead cost by monthly sales, and multiply by 100. For example, a business with monthly sales of $100,000 and overhead costs totaling $40,000 has ($40,000/ ($100,000) x 100 = 40% overhead.

The factory heating and lighting costs are factory expenses, hence can be considered as a factory overhead.

Actual Overhead costs are the true costs incurred and typically include things like indirect materials, indirect labor, factory supplies used, factory insurance, factory depreciation, factory maintenance and repairs, factory taxes, etc.

Overhead costs are the continuous business expenses that are not directly related to manufacturing a product or creating a service. It is an important part of the budgeting process and also determines how much a company will charge for a product or service for profit.

Overhead ÷ Total Revenue = Overhead percentage

In a business that is performing well, an overhead percentage that does not exceed 35% of total revenue is considered favourable. In small or growing firms, the overhead percentage is usually the critical figure that is of concern.

In business accounting, source documents would include items such as invoices, receipts, deposit slips, checks, travel documents, timecards, orders, credit memos, etc. With advances in technology, source documents now also include electronic records, such as an emailed receipt or an electronic bank statement.

Typical source documents include sales invoices, cash receipts, cash register slip, credit notes and deposit slip.

What are the main sources of overhead expenses? ›

Overhead expenses include accounting fees, advertising, insurance, interest, legal fees, labor burden, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities. There are essentially two types of business overheads: administrative overheads and manufacturing overheads.

Overhead costs are fixed operating expenses that aren't linked to a product or a service. These are typically regularly occurring expenses that the company needs to operate like internet costs, insurance, rent, employee salaries, utilities, accounting fees, legal fees, office supplies, etc.

Overhead costs include things like rent and utilities, business licenses, accounting fees, advertising expenses, and payroll. These costs are fairly predictable and constant, whereas direct costs, such as raw materials or packaging supplies, are directly correlated to the product or service you provide.

You can use the following formula to calculate applied overhead:Applied overhead = estimated amount of overhead costs / estimated activity of the base unitFor example, consider a company that uses labor hours as the base of cost allocation.

What expenses are not overhead? Any costs that are directly related to manufacturing and selling a product are not considered overhead, including labor, materials, and production costs, are not overhead. These are called “direct costs” or “operating costs.”

Standard overhead costs include rent, utilities, and insurance payments, while operating expenses may include salaries, depreciation, and delivery charges.

Overhead costs are indirect costs which supports a production function. Examples would include material overhead (inventorying, forklifts, warehousing and storage of the material, etc.), manufacturing overhead (lease and rental payments, utilities, etc.)