Tuesday, February 28, 2017

Understanding Overhead

Understanding Overhead

Understanding Overhead - Factory overhead costs are often abbreviated with the BOP, is the cost of production in addition to the cost of materials and direct labor costs. Factory overhead costs are costs that can not be charged directly to suatuu unit of work or on a particular production.

Overhead is the expenditure required for the operational functions of public companies, and that can not be directly linked to income-generating activities or units of output (such as a product for sale). Examples of overhead burden is the cost accounting, legal, utilities, executive salaries and office rent.

Factory overhead costs usually arise from the costs to be incurred for the use of additional materials, indirect labor costs, supervision of production machines, taxes, insurance, until the additional facilities required in the production process. These costs can be classified into three broad categories.


  • Factory overhead costs by their nature, are divided into auxiliary costs, indirect labor costs, and the cost of repair and maintenance.
  • Factory overhead costs according to their conduct in relation to changes in production volume, divided into fixed factory overhead costs, variable factory overhead costs, and factory overhead costs semi-variable.
  • Factory overhead costs by their relationship with the department, is divided into two types, namely direct departmental factory overhead costs (direct departmental overhead expenses) and factory overhead costs not directly department (indirect departmental overhead expenses).


To be able to calculate overhead costs, there are several steps that must be done by the company, namely:

a. Creating a budget BOP is based on the volume of activities to be conducted in the future.
b. Define and estimate the loading BOP basis. The basic loading can be done by units of the product, raw material costs, direct labor costs, direct labor hours and machine hours.


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