Module 1 Lecture 2-Introduction to Overheads

Overheads:

All the Indirect Expenses grouped under one head called Overheads.

Types of Overhead expenses:

Factory Expenses

Administrative Expenses

Selling Expenses

Distribution Expenses

Factory overheads or Factory expenses

All the indirect expenditure incurred towards factory works for the
manufacture of a product

Factory overheads are also called as Works on cost.

The amount spent other than direct labour, direct material and direct
expenses in a factory comes under this heading.

Examples of factory overheads

Wages paid to indirect workers like foreman, watch man etc.

Workers canteen and welfare expenses.

Insurance contribution to employees.

Factory rent, electricity charges & water charges for the factory etc.

Examples of factory overheads Contd..

Cost of any material which cannot be directly charged.

Salaries of general manager, finance manager, secretary and their staff.

Insurance of plant and factory.

Depreciation of plant and machinery, tools and their repairs.

Examples of factory overheads Contd..

Indirect materials such as, cotton waste, coolants and lubricating oils, grease
etc.

Telephones, telegrams, stationery charges etc.. for the factory.

Transportation expenses of materials from stores to production shops.

Administrative overheads

All the expenditure made on the Establishment and Administrative purpose.

Administrative overheads are also called as Office or Establishment on cost.

Examples of Administrative overheads

Office building depreciation or repair charges, office rent, if it is rented

building.

Light and power required for office.

Bank charges.

Telephone, telegram and postal charges required for office

Examples of Administrative overheads Contd..

Expenditure incurred on legal section

Expenditure on audit.

Salaries of administrative staff. Salaries of General Manager and Finance

Manager.

Selling overheads

These overheads consists of expenditure made in selling the product in the

market.

Examples of selling overheads

Salaries of sales manager, salesmen and other sales staff etc.

Traveling expenses and commission to salesmen.

Advertisement expenses.

Showroom expenses.

Examples of selling overheads contd..

Printing of catalogue, price list etc.

Telephone and postal charges for sales.

Legal charges incurred for recovery for debts etc.

Rebate to consumers.

Market research.

Cost of preparing tenders.

Cost of consumer service and service after sales.

Cost of demonstration.

Distribution overheads
The expenditure made for the distribution of its product in the market is known as
distribution expenses.

Examples of Distribution expenses

Packing and carriage charges.

Godown rent.

Insurance on finished goods in godowns.

Wages of dispatch clerk and labour.

Expenses on delivery vehicle, repairs, depreciation etc.

Cost of transportation of goods.

Cost of loading and unloading.

Frequently asked questions

1. Give examples of Administrative overheads.
2. Explain briefly Factory overheads.
3. Give examples of Sales overheads.

4. Explain briefly Distribution overheads.

QUIZ
1. Cost of idle time of workers comes under ________
a) Factory overheads
b) Administrative overheads
c) Selling overheads
d) Distribution overheads
2. Packing charges comes under ________
a) Factory overheads
b) Administrative overheads
c) Selling overheads
d) Distribution overheads
3. Advertisement expenses comes under ________
a) Factory overheads
b) Administrative overheads
c) Selling overheads
d) Distribution overheads
4. Expenditure on Audit comes under _________
a) Factory overheads
b) Administrative overheads
c) Selling overheads
d) Distribution overheads

Assignment
1. Give the classification of overheads
2. List out the various selling and distribution overheads