1. Production Overheads
These are production or factory expenses other than direct costs. These may be also called as factory or works overheads.
Production overheads usually
a) Indirect Material
Indirect material is that material which cannot be charged directly to the production of a specific product. It is normally required for operating and maintaining the plant and equipment e.g. cotton waste, lubricating oils, spare parts for machinery, works stationery, hand tools etc. Sometimes, it is also called as consumable materials. Some minor items of material which are required in the production of any commodity are also treated as indirect material e.g. nails.
b) Indirect Wages
These are wages which are paid to those workers who are required to complete some processes in respect of all the products. These cannot be identified for the production of any specific product. The examples of indirect wages are factory supervision, wages of maintenance staff like cleaners and repairers, store men’s wages, wages of work clerical staff etc.
c) Rent, rates, insurance, water, power and electricity charges for the factory,
d) Depreciation of factory plant and machinery, depreciation of factory buildings, maintenance and repairs of factory plant and buildings.
e) Sundry expenses like canteen, entertainment and medical facilities provided to the workers.
2. Administration Overheads
All the expenses incurred for providing control, direction and management of the enterprise are called- as administration overheads. These also include expenses related to secretarial, accounting and legal services.
Administration overheads include the following expenses:-
i. Rent, rates, insurance, water and electricity for the office,
ii. Salaries of office staff e.g. accountants, secretaries, office clerks and management staff like directors.
iii. Depreciation of office furniture, office equipment and office buildings. iv. Office stationery and maintenance cost of office equipment. v. Legal expenses e.g. fees of advocates.
vi. Financial expenses e.g. interest on loans.
3. Selling and Distribution Overheads
Selling and distribution overheads may be taken together or separately. Most organizations find it more convenient to take these overheads together.
Selling overheads are those expenses which are incurred to secure orders and to increase sales of the enterprise. These also include the expenses associated with the sale of goods.
Selling overheads consist of the following expenses
(i) Advertisement expenses.
(ii) Salaries of salesmen and commission of sales agents.
(iii) Sales correspondence expenses and cost of preparing catalogues and price lists.
(iv) Rent of salerooms and offices, water and electricity expenses of salerooms.
Distribution overheads are those expenses which are incurred on the movement of finished goods from factory to warehouse and then in delivering these goods to the customers.
Distribution overheads consist of the following expenses:-
(i) Transport charges in respect of movement of finished goods from factory to warehouse and from warehouse to customer's premises.
(ii) If delivery vans are maintained then cost of maintaining these delivery vans including fuel, insurance and repair charges.
(iii) Salaries of delivery van drivers; mechanics and delivery clerks.
(iv) Rent, rates, insurance, water and electricity charges of warehouse.
Wilfykil answered the question on April 15, 2019 at 09:21