ABSTRACT
Overheads are those costs which are incurred every month regardless of whether a product is produced or a service delivered. They are generally described as period costs, meaning that they are incurred over a period of time and not specifically incurred when each unit of product is produced or each individual service is delivered. All organizations are concerned with overheads and the assigning of these to products and services. In manufacturing, overheads used to account for 10 per cent of total product costs with labour accounting for 40%. This position is now reversed with overheads accounting for 40 per cent of product costs and labour accounting for only 10 per cent. With overheads now being a significant proportion of total cost, the problem of how to charge them to products is much more important than it was. Overheads are also incurred by service organizations so they share the same problems in terms of assigning overhead.
