What are Overheads or Indirect expenses? Mention any three types of overheads with an example of each.

Overheads or Indirect Expenses are those expenses which are not directly attributable to a specific job, product or cost centre. They include all expenses other than direct expenses and are incurred for the general organisation and control of the business as a whole.

Overheads include indirect materials, indirect labour and indirect expenses combined. They cannot be traced directly and in full to a specific product or department, and hence have to be apportioned on a suitable basis.

Three types of overheads:

1. Factory or Manufacturing Overheads — Indirect costs incurred in connection with the production of goods and services. They are necessary to operate the manufacturing facility.

• Indirect materials — e.g., grease, oil, consumable stores.
• Indirect labour — e.g., salary of storekeeper.
• Indirect expenses — e.g., power and fuel, depreciation of factory plant.

Example: Factory rent.

2. Office and Administrative Overheads — Indirect costs incurred in connection with the general management and administration of the organisation.

• Indirect materials — e.g., printing and stationery.
• Indirect labour — e.g., salary of office manager.
• Indirect expenses — e.g., office rent, audit fees.

Example: Salary of office staff.

3. Selling and Distribution Overheads — Indirect costs incurred in selling and distributing goods and services to customers.

• Indirect materials — e.g., price lists, packaging materials.
• Indirect labour — e.g., sales commission, salaries of sales staff.
• Indirect expenses — e.g., advertising, warehousing charges, freight outward.

Example: Advertisement expenses.