22 August 2010
fixed production overhead The elements of an organization's factory overheads that, in total, remain unchanged irrespective of changes in …
Determine fixed production overhead. This is comprised of items that are an indirect cost to the production of a good, such as manager's wages, which are also fixed in nature. A fixed cost is one that does not change based on changes in output of the product or service. Fixed production overhead must be both fixed and indirect.
Step 2
Determine direct costs. Direct costs are costs tightly associated with the production of a good. A company can trace a direct cost to actual production of a good or service, such as labor used to produce the good or service or the cost of material used in production.
Step 3
Divide fixed production overhead by direct costs, which equals the overhead recovery rate. For example, if there was Rs. 100 in fixed production overhead costs and Rs. 1000 of direct costs, then Rs. 100/Rs.1000 equals 0.1, or 10 percent. So for every Rs.1 of direct costs, a company will have Rs.0.10 of fixed production overhead costs.
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