Question

why is it important to control fixed overhead cost

Answer 1

Overhead Cost Controlling allows us to collect and analyse costs that cannot be directly assigned to the production of goods and services of a company. As overhead grows, the proportion of directly assignable production costs shrinks. Consequently, it is becoming increasingly important to analyze and control overhead costs. Similarly, increasingly sophisticated tools are needed to facilitate the application of overhead to production orders and other cost objects.

The main purpose of Overhead Cost Controlling is to take costs that cannot be assigned directly to the goods and services of a company and allocate them as far as is possible according to their cause. Account assignment objects for such costs include cost centers and internal orders, for example. This means that within the planning process it is possible to plan not just costs but also internal activities that can then be used to calculate prices for the activity types.

1. Planning

2. Allocating

3. Control

4. Monitoring of overhead cost.

Controlling of fixed cost :-

1. To reduce total cost of product or service as soon as possible

2. Proper allocation of overheads among all the goods uniformly

3. Usage of all fixed assets and apportioning the expenses and value of all assets among all the produced products

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