Cost Accounting For Dummies

Chapter 8

Focusing on Overhead Costs

In This Chapter

Understanding how overhead relates to other company costs

Working with differences between fixed and variable overhead

Applying variance analysis to overhead costs

Reviewing typical fixed overhead cost variances

Assessing variances in variable overhead costs

Indirect costs, also referred to as overhead, can be fixed or variable. For example, the salary of a foreman who manages the factory floor is a fixed overhead cost because the total cost does not change. Trucking costs to ship products to customers is a variable overhead cost. That’s because shipping costs do change, depending on your production and sales. Both types of costs, however, relate to production. That’s why both costs are considered overhead that is allocated to the cost of your product.

This chapter looks at how fixed and variable overhead costs are calculated and how you can use variance analysis (see Chapter 7) to reduce your costs and increase your profit.