1. Production overheads (factory or works overheads)
These are factory expenses other than direct costs
They include:-
• Indirect materials – that cannot be charged directly to the production of a specific product. It’s normally required for operating and maintaining the plant and equipment e.g. lubricating oil, spare parts for machinery etc. This is also called consumable materials.
• Indirect wages – These are wages which are paid to those workers who are required to complete some process in respect of all the products e.g. factory supervision, wages of maintenance of staff like cleaners and repairers, store men’s wages etc.
• Rent, rates, insurance, water, power and electricity charges for the factory.
• Depreciation of factory plant and machinery, depreciation of factory buildings, maintenance and repairs of factory plant and buildings.
• Sundry expenses like canteen, entertainment and medical facilities provided to the workers.
2. Administration overheads.
These are expenses incurred in providing control, direction and management of the enterprise. They
include expenses related to secretarial, accounting and legal services. Others include: Rent, rates, insurance, water and electricity for the office.
• Salaries of office staff e.g. accountants, clerks etc.
• Depreciation of office furniture, office equipment and office buildings.
• Office stationery and maintenance cost of office equipment.
• Legal expenses e.g. fees of advocates.
• Financial expenses e.g. interest on loans bank charges etc.
3. Selling and distribution expenses
Selling overheads are the expenses incurred to secure orders and to increase sales of the enterprise.
They also include:-
• Advertisement expenses.
• Salaries of salesmen and commission of sales agents.
• Sales correspondence expenses and cost of preparing catalogue and price lists.
• Rent of salesrooms and offices, water and electricity expenses of salesrooms.
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. These include:Transport charges (carriage outwards).
• Cost of maintaining delivery vans e.g. fuel insurance and repair charges.
• Salaries of delivery van drivers, mechanics and delivery clerks.
• Rent, rates, insurance, water and electricity charges of warehouse.
NB: total cost + profit (or minus loss) gives the selling price.
Wilfykil answered the question on April 17, 2019 at 05:19
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