How is Overhead Cost Calculated?
Overhead is frequently considered a general expenditure, so it is accrued in one single payment. This is then applied to a particular product or service. There are a variety of different techniques to calculate overhead. Knowing your overhead cost will allow you to calculate the overhead rate based on the price of your product or service. The net income will increase as the overhead rate decreases. For example, suppose a firm has ₹10,000 in overhead expenditures and ₹50,000 in sales per year. The following calculation can be used to establish the rate:
Formula of Overhead Cost
[Tex]Overhead~Rate=\frac{Overhead~Expenditures}{Sales}[/Tex]
I.e., the company has used ₹1 in overhead to generate a sale of ₹5.
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