Proper Placement of Overhead

摘要

Most conversations about overhead turn out to be complicated and emotional. People are confused about how it is defined, how it is calculated, and above all, how it is recovered. Everyone does it differently, and no one is happy. AccountingTools.com defines overhead or indirect costs as "those administrative expenses of a business that are required to operate general corporate functions, and which cannot be definitively attributed to any revenue-generating activities or units of output." The definition raises two critical questions. First, how do you define the "general corporate function" covered by the expenses? Second, how do you definitively attribute these costs to a revenue-generating activity or unit of output and thereby establish the mechanism used to recover the expenditures involved? Let's define three distinct types of indirect costs and see if we can answer the questions. Everything is summarized in the table.