Overhead expenses - class-VIII

An example of a production overhead would be supervisory costs.
Materials and labour costs would be directly attributable to the product and would be classed as direct costs. Rent is a non production overhead but salaries of supervisors are related to production and are an overhead as they do not vary directly with output.

By definition, Overhead is the additional cost which is added to the cost price of an item. 

Absorption costing is closely related to overhead expenses.

The additional cost spent on transportation, maintenance, labour, repair, etc., expenses incurred are called $\text{Overhead expenses}$.

The effective selling price is the price at which an item is sold, whereas the cost price plus overhead expenses together make up the total cost or total effective cost, not the selling price.

Let the cost of the T.V. be $Rs.\ x$ Then 
Material coast $\displaystyle =\frac{4x}{9}$ ,Labour coast $\displaystyle =\frac{3x}{9}$ ,Overhead costs $\displaystyle =\frac{2x}{9}$ New material cost $\displaystyle =\frac{110}{100}\times \frac{4x}{9}=\frac{44x}{90}$ 
New labour cost $\displaystyle =\frac{108}{100}\times \frac{3x}{9}=\frac{9x}{25}$
New overhead costs $\displaystyle =\frac{95}{100}\times \frac{2x}{9}=\frac{19x}{90}$
Increase in the cost of T.V.=$\displaystyle \left ( \frac{44x}{90}-\frac{4x}{9} \right )+\left ( \frac{9x}{25}-\frac{3x}{9} \right )+\left ( \frac{19x}{90}-\frac{2x}{9} \right )$
$\displaystyle =\frac{4x}{90}+\frac{2x}{75}-\dfrac{x}{90}=\dfrac{20x+12x-5x}{450}=\dfrac{27x}{450}$ $\displaystyle \therefore increase: in: cost=\dfrac{\dfrac{27x}{450}}{x}\times 100%=\dfrac{2700}{450}%=6%$

Total amount spent by Ann = Cost price + overhead expenses
= $150000 + 4000 + 2000 = Rs. 156000$

The overhead charges become a part of the cost price.
So, Rs. 200 is a overhead expenses spent by Mike.

The amount spent on repairs, labor charges and transportation etc. expenses are called as overhead expenses.