The Controllership Series - Overhead, Direct and Indirect Costs and Allocation Methods

Overview

Managing expenses is a key for business success, and overhead costs play a pivotal role in realizing favorable profit margins. Almost all companies have some form of overhead consisting of specific categories of indirect expenses. The better organizations are able to manage overhead costs, the more competitive they are in the marketplace. It is incumbent in the Controller’s role to effectively manage, monitor and perform ongoing assessment of overhead costs, allocations and rates.
Overhead refers to the ongoing business expenses not directly attributed to creating a product or service. A company must pay overhead on an ongoing basis, regardless of how much or how little the company sells. It is important for budgeting purposes but also for determining how much a company must charge for its products or services to make a profit.

Overhead can be fixed, variable, or a hybrid of both. There are different categories of overhead, such as administrative overhead, which includes costs related to managing a business. In short, overhead is any expense incurred to support the business while not being directly related to a specific product or service.

Highlights

Accounting
Finance
Procurement
Operations

Prerequisites

None

Designed For

Controllers, Accountants, CFO, Finance Professionals, Operational Professionals, Auditors

Objectives

Explore and understand overhead costs
Discover and examine types of fixed and variable overhead costs
Identify and understand overhead rates and allocation methods
Explore overhead allocation measures and overhead rate calculation
Explore activity-based costing
Recognize and review responsibilities of the controller for overhead costs