Excerpts from icai study material "If variable overhead consist of indirect material them in this case it vary with direct material used" Can anyone explain this? What's the difference between overhead and indirect expenses?
4 Replies
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 22 February 2021
Costs are identified through two criteria’s- by nature and by behaviour. Sometimes they are classified as prime costs and fixed costs, And also as variable overheads and fixed overheads. if I can remember properly- glue used in packaging is treated as fixed costs and it is variable in nature because the number of packaging boxes depend directly upon production.
the meaning of your query is- it means the indirect material which is a fixed overhead will be treated separately from variable overheads. Eg. an iron smelting company always keeps its furnace on by inputting gas or material through out the year. This is fixed expense and what iron ore is used to mould iron bars is a variable cost.
shilpi
(student)
(780 Points)
Replied 22 February 2021
All indirect expenses are overhead .And we can say, indirect expenses /overhead can also vary with production after allocation, apportionment of expenses to a cost centre . Is this my understanding correct?
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 22 February 2021
Yes Overheads name is for indirect expenses as per cost classification by nature. Otherwise , you can call variable costs as variable overheads as well when costs are classified by behaviour.
Yes, in absorption costing, all costs related to manufacturing of a product are absorbed= fixed+ variable
Similarly, abc costing allocates fixed overheads to the product based on the activity.
Finally, marginal costing avoids fixed overheads but it s mainly used for analysis only and in reality all costs are absorbed.
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