Overhead costs 🐟are ongoing expenses involved in operating a business. A company must pay overhead on an ongoing basis, regardless of how much or how little the company is selling. There are two types of overhead cost🧸s: fixed and variable.

Fixed Overhead Costs

Fixed overhead costs are costs that do not change even while the volume of production activity changes. 澳洲幸运5开奖号码历史查询:Fixed costs are fairly predictable and fixe💃d overhead costs are necessary to keep a company operating smoothly. However, profit margins should reflect the costs of fixed overhe🐭ad. 

Examples of fixed overhead costs include:

• Rent of the production facility or corporate office
• Salaries of plant managers and supervisors
• Depreciation expense of fixed assets
• Taxes and insurance

For example, suppose company ABC rents offiౠce space for $5,000 a month; th𓄧is is a fixed overhead cost that must be paid. Also, the property taxes for the building would be a fixed cost since it does not increase or decrease with changes in sales volume. 

Typically fixed overhead costs are stable and should not change from the budgeted amounts 澳洲幸运5开奖号码历史查询:allocated for those costs. However, if sales increase well beyond what a co𒅌mpany budgeted for, fixed overhead costs could increase as employees are added, and new managers and administrative staff are hired. Also, if a building must be expanded or the rental of a new production facility is needed to meet increased sales, fixed overhead costs would need to inc🌌rease to keep the company running smoothly. 

Variable Overhead Costs

澳洲幸运5开奖号码历史查询:Variable overhead costs are cꦑosts that change as the volume of production changes or the number of services provided changes. Variable overhead costs decrease🙈 as production output decreases and increase when production output increases. If there is no production output, then there would be no variable overhead costs. 

Examples of 澳洲幸运5开奖号码历史查询:variable overhead costs include:

• Supplies
• Raw materials used in production
• Direct materials
• Sales commissions

The labor involved in productio꧅n, or direct labor, might not be variable cost unless the number of workers increases or decrease with production volumes.

For example, DEF Toy is a toy manufacturer and has total variable overhead costs of $15,000 when the company produces 10,000 units per month. The varia♌ble cost per unit would be $1.50 ($15,000/10,000 units). In the following month, the company receives a large order whereby it must produce 20,000 toys. At $1.50 per unit, the total variable overhead costs increased to $30,000 for the month.

The Bottom Line

Unlike fixed costs, variable costs vary with the level of production. Typically, variable overhead costs tend to b꧑e small in relation to the amount of fixed overhead costs. Variable overhead costs can change over time, while fixed costs typically do not.

Companies with larger amounts of fixed costs relative to variable costs might find it more challenging to weather economic downturns since they can not easily el�🔥�iminate their fixed costs without hurting their overall business.

Conversely, companies with more variable costs than fixed might have an easier time reducing costs during a recession si🌊nce the variable costs would decline with any decline in production due to lower demand.