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In: Accounting

Discuss "Overhead Costs" and the difficulty it causes when dealing with manufacturing costs.

Discuss "Overhead Costs" and the difficulty it causes when dealing with manufacturing costs.

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Expert Solution

While producing the products, different types of expenses are incurred for their completion. These costs may be divided into 'Direct and Indirect' cost. Also a company consists of different departments which may be categorized as

1. Factory unit

2. Office and administration

3. Selling and distribution

Each one of the above consists of direct and indirect cost. Here the indirect costs of all above departments are known as overhead costs.

Manufacturing cost-

It refers to the cost which includes-

1. Direct material

2. Direct labour

3. Factory indirect cost(i.e. factory overhead)

And manufacturing costs do not include the cost incurred in office and selling department ( only factory costs are included).

But the difficulty in computation of overall cost are-

a) One who don't have the knowledge about the category of expense may get confused while categorising into proper head ( manufacturing cost or overhead)

b) One may add the office and selling overhead in manufacturing cost.

ekkarill92 answered 11 months ago
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