Overhead costs help!


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Hi everyone i am new on here I just started a degree in Accounting and finance last month and have an assignment coming up was wondering if any of you could help a noob out 

"Material and labour costs are easy to trace products. When looking at overhead costs it becomes more difficult.

Undertake a literature review on overhead costs and write about the subject drawing relevant conclusions"

I get the jist of it but if someone could show me how to plan it and what sort of things to look for when writing it would be so much appreciated.
Thanks :)
 
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bklynboy

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Overhead are costs that can not be traced directly to a product or service. Typical examples are rent, utilities, salary of corporate people (such as accountants) and the like. Most companies develop an allocation method to assign overhead to product lines who ultimately need to pay for it and must build it into their sale price. The practice differs among companies but is generally based on statistics that attempt to charge to the cost to where its being most used. For instance, rent and utilities may be charges based on square footage. In the end you are still left with costs that a general allocation formula is used (such as accountants salary) and is typically based on the relative size of each product line (i.e. the bigger the product line the more overhead costs gravitate to that line).
 

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