Costs, which cannot be directly identified and completely charged to a cost unit, are known as ‘indirect cost’. Direct material, direct labour and direct expenses constitute prime cost. Indirect material, indirect labour and indirect expenses, other than prime cost are collectively called ‘overheads’ or ‘on costs’.

The overheads can be broadly divided in to three categories:

(a) Production or factory or manufacturing or works overheads.

(b) Administrative or office overheads and

ADVERTISEMENTS:

(c) Selling and distribution overheads.

Production, Factory or Manufacturing or Works Overheads:

This category covers all indirect pedicure incurred from the receipt of the order until its completion. Other terms used for such expenses are: Factory Overheads, Production Overheads, Works Overheads, and Work on cost. They include:

• Indirect Material: Oil, lubricant, waste, rags, etc.

ADVERTISEMENTS:

• Indirect Labour: Salary to gatekeepers, timekeepers, supervisors, foremen, cleaners, transport labourers, works clerks, etc.

• Indirect Expenses: Factory rent and insurance, factory heating and lighting, depreciation of plant and machinery, loose tools, leakage and shrinkage, etc.

Administrative or Office Overheads

These consist of all expenses incurred in relation to planning, control and administration-secretarial, accounting and finance of an enterprise. They include:

ADVERTISEMENTS:

• Indirect Material: Printing and stationery material, brooms and dusters, etc.

• Indirect Labour: Salary to Office staff and managers, etc.

• Indirect Expenses: Rent, insurance, depreciation and repair to office building, telephone, telegram, fax, and postage, etc.

Selling and Distribution Overheads

ADVERTISEMENTS:

Selling Overheads: These comprise of all expenditure incurred after production until the product is put in the saleable condition. Cost of securing an order and efforts to locate and retain customers is taken as selling overheads. Examples of such overheads are:

• Indirect Material: Primary packing, advertisement materials and advertisement expenses.

• Indirect Labour: Salary and commission to salesmen, sales managers, sales representatives and agents.

• Indirect Expenses: Rent, consumer services, and after sales services, etc.

ADVERTISEMENTS:

Distribution Overheads: It comprises of all expenditure incurred from their product is put in a saleable condition until it reaches its place of distribution.

Examples of expenses fall in this category are:

• Indirect Material: Secondary packing material and material required loading and unloading.

• Indirect Labour: Salary to dispatch clerk, distribution personnel and with to workers for packing and loading, etc.

ADVERTISEMENTS:

• Indirect Expenses: Warehouse charges, transportation cost of go packing, loading, carriage outwards, upkeep and running expense delivery van, etc.