What is Actual Overhead?

Actual Overhead

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Actual Overhead

Actual overhead refers to the real, incurred expenses associated with the indirect costs of manufacturing a product or delivering a service. These costs are not directly traceable to individual products or services but are essential for the overall operations of a business. Actual overhead includes costs like rent, utilities, salaries of support staff, and depreciation of equipment, among others.

Actual overhead is important for businesses to track, as it helps them understand the real expenses incurred during a specific period, like a month or a financial year. Accurate recording and analysis of actual overhead costs are crucial for determining product pricing, budgeting, and financial planning.

Example of an Actual Overhead

Let’s consider a small manufacturing company that produces custom furniture. For a particular month, the company has the following overhead costs:

  • Rent for the factory: $4,000
  • Utilities (electricity, water, etc.): $1,200
  • Salaries of support staff (administrative personnel, maintenance staff, etc.): $6,000
  • Depreciation of equipment: $2,000

The actual overhead for this month would be the sum of all these costs:

Actual overhead = Rent + Utilities + Salaries of support staff + Depreciation of equipment Actual overhead = $4,000 + $1,200 + $6,000 + $2,000 Actual overhead = $13,200

In this example, the actual overhead for the small manufacturing company is $13,200 for the month. This information is important for the company to track and analyze to make informed decisions about pricing, budgeting, and overall financial management.

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