Here are two common ways to categorize overhead, each with two subcategories:
1. By Function:
* Direct Overhead: Directly related to the production of goods or services. Examples:
* Factory Overhead: Costs of running the factory, such as rent, utilities, and maintenance.
* Administrative Overhead: Costs of managing the company, such as salaries of executives, accounting, and legal fees.
* Indirect Overhead: Costs that are not directly tied to production but still necessary for the business to operate. Examples:
* Selling Overhead: Costs related to marketing and selling products, like advertising and sales commissions.
* General Overhead: Costs that are not directly related to production, selling, or administration, such as research and development, and insurance.
2. By Behavior:
* Fixed Overhead: Costs that remain constant regardless of the volume of production. Examples:
* Rent
* Salaries of management
* Property taxes
* Variable Overhead: Costs that fluctuate with the volume of production. Examples:
* Utilities (electricity, gas)
* Indirect materials
* Maintenance costs
It's important to note that some overhead costs can be both fixed and variable. For example, a portion of utilities may be fixed (like a base monthly charge) while another portion varies based on usage.
Ultimately, the way you categorize overhead depends on the specific needs of your analysis.
