Actual Overheads

It refers to indirect manufacturing costs actually incurred by the business as part of the production process during a specific accounting period. Since these costs are not directly traceable to products/ items, the overheads must be assigned, allocated or applied to the number of the product units produced by the business. These overheads are recorded in the company’s general ledgers as the costs are incurred. Some of the many overhead costs are as follows:

• Electricity used by the business during the production process
• Natural gas for heating production equipment and facilities
• Repair and maintenance of equipment used during the production process
• Depreciation of production equipment
• Salaries, wages and other benefits given to production supervisors