costing definitions

System

Hi everyone,<BR>Recently during my costing revision i felt more and more confused by some cosing definitions ,can anybody help me?<BR><BR>What is the difference between INDIRECT EXPENSES and OVERHEADS?<BR>Are they the same thing ?<BR><BR>And then how about EXPENSES and OVERHEADS ? I undertand expenses include indirect and direct ,but not for OVERHEADS,in that case ,below the gross profit line it should be listed as less overheads not expenses<BR><BR>anyway i have already confused by myself!!!<BR>many thanks in advance for anybody lending me a hand!!!<BR>chaoliss

System

costing definitions

Indirect costs are those costs not identifiable with specific products. They are also called overheads.<BR>There can be indirect material costs e.g. cleaning materials<BR>There can be indirect labour costs e.g. the stores staff wages<BR>There can be indirect expenses e.g. Factory rent or rates<BR><BR>Any costs that can be identified directly with producing or selling a product is direct as it "belongs" to the specific product<BR>material: eg the chocolate used to make an Easter Egg<BR>labour e.g. the piece rate paid to a member of staff to pack the Easter Egg in the box<BR>expenses e.g. the royalty payable to Disney for each Easter Egg which has a Mickey Mouse emblem on it<BR><BR>Only indirect costs (overheads) are analysed to find overhead absorption rates<BR><BR>So do not be afraid to spit an invoice or cost forecast and only use the parts which relate to indirect costs<BR><BR>If you have an Easter Egg in its own cup as the product<BR><BR>and the invoice is for<BR>Cups<BR>The aluminium foil to wrap the Easter Egg<BR>and<BR>washing up liquid (to wash up after the egg making has been completed)<BR><BR>Then IGNORE the cups and aluminium foil in the overhead analysis - as they are DIRECT costs<BR><BR>only use the washing up liquid as it is an INDIRECT cost (overhead)<BR><BR>I hope that helps<BR><BR>Revision classes available<BR>sandy.hood@chichester.ac.uk<BR><BR>