ABSTRACT
Overhead expenses are classified as follows: factory overhead expenses, administrative overhead expenses, and selling overhead expenses. The chapter also examines each class of overhead expenses in detail. Salaries paid to corporate staff and research and development staff are listed as administrative overhead. Salaries paid to sales, marketing, and distribution teams are listed as sales and distribution overhead. The chapter presents some methods that are useful in allocation of overhead costs. These methods include the following: single parameter method, multiple parameter method, and unused capacity costs. The single parameter method of allocation uses one parameter on the basis of which indirect costs are allocated. The multiple parameter method of allocation aims to achieve a better distribution of overhead expenses than what is achieved using the single parameter alternative. Activity based costing is a method that has been developed to suit the needs of industries that incur high overhead costs.
