Question

X Company incurred the following costs in 2017:

Factory insurance		$5,632
Customer service		5,348
Factory maintenance		4,147
Advertising costs		4,090
Direct labor		4,394
Direct materials		5,438
Sales salaries		4,319
Factory utilities		4,596
Material handling		5,457
Research & Development		4,604

What was total overhead in 2017?

Answer 1

Overheads or fixed costs are those which are not directly linked to number of units produced and thier total stays constant.

Looking at the above list, following can be classified as Overheads

1. Factory insurance : It is normaly a fixed sum paid per period
2. Advertising costs: Advertising is done to promote product and create sales. It is usually a fixed amount spent irrespective of number of units produced
3. Factory utilities: Rent for Factory uitilities are to be paid for every period irrespective of production
4. Research and devlopment: It is done to develop new products and improvements in existing products. As it is not linked to how many units we produce. It is an overhead

Therefor total overhead expense = 5632+4090+4596+4604 = 18922