Overhead Charges

Overhead Charges – Definition, Types, Examples | How to Calculate the Overhead Costs or Charges ?

Overhead Charges: These Charges are nothing but the internal charges for operating the business. Overhead charges are unique in elucidating the amount that a company should charge the product for producing the profit. In this article, 6th grade math students can find out about the Overhead Definitions, Formulas, and the way to solve the problems simply.

Overhead Charges – Definition

A Continuing process that is associated with our day-to-day manipulations for operating the business. These charges might change as per the business environment. They are unable to trace for a particular price section or business task. They assist in whole income-producing business tasks. These overhead charges are of three Types.

  • Fixed costs
  • Semi-variable costs
  • Variable costs

Types of Overheads Charges

1. Fixed Charges: A kind of charge which includes the amount similar across duration. It indicates the charges where a company should pay, free of particular business tasks. They are kept across a particular duration.
2. Semi-Variable Costs: There exists a little bit of fluctuation in price. They might contain a base rate which we should pay all the time and also the changing rate with the usage.

3. Variable Costs: These kinds of charges are the charges of running a company which vary through the stage of the business task. These variable charges normally involve such as shipping, legal prices, advertising…etc. They are unable to vary with business tasks.

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Calculation of Overhead Cost Examples

Question 1:
Sowmya purchases a few electronic goods from a wholesaler for Rupees 700 and spends Rupees 200 to transport, But sowmya sells these electronic goods for Rupees 1000. Then Calculate the profit or loss that Sowmya faced and evaluate in terms of Percentage.

Solution:
1. Given the Overall  Cost Price of Electronic goods = Cost Price + Overhead Charges
= 700 + 200
=  900
Selling Price = Rupees 1000   [ Here the Selling price is more than the Cost Price which indicates a Profit According to the Definition]
2. Profit = Selling Price – Cost Price
= 1000 – 900
= 100
3. Express the obtained profit in terms of Percentage using the Percentage Profit Formula as shown Below
profit% = (profit/Overall cost price) × 100%
= (100/ 900).100
= 11.11%

Question 2:
Suppose Anusha purchases the Refrigerator For Rupees 9000 from Tirupati and sells the Refrigerator at a price of Rupees 9400. When his overhead charges amount to Rupees 2000. Then calculate the Loss or Profit that Anusha faced and express the obtained result in Percentage.

Solution:
1. Given the Overall  Cost Price of Refrigerator = Rupees 9000 + Overhead Charges = Rupees 2000
= 9000 + 2000
=  11000
Selling Price = Rupees 9400   [ Here the Selling price is Less than the Cost Price which indicates a Profit According to the Definition]
2. Loss= Cost Price – Selling Price
= 11000 – 9400
= 1600
3. Express the obtained loss in terms of Percentage using the Percentage Loss Formula as shown Below
Loss% = (Loss/Overall cost price) × 100%
= (1600/ 11000).100
= 14.5%

FAQs on Calculating the Overhead Charges

1. What are Overhead Charges?
An extra or additional charge paid for operating the business is nothing but the Overhead charges.

2. What are the various types of Overhead charges?
The overhead Charges are of three types namely fixed costs, Semi-variable costs, and variable costs.

3. Can overhead charges produce revenue?
No, they are unable to produce revenue.

4. Do the overhead charges vary as per the kind of charges?
Yes, charges vary according to the type of overhead charges.

5. Can the overhead charges tell the overall profit?
Of course, they can tell the overall profit, often known as the Bottom Line.

6. What are the few examples of Overhead Charges?
Transportation, Rents, Travelling Expenses.. etc.

7. How to calculate or evaluate the Overhead Rate?
It is determined by Using the Formula Overhead Rate = Overhead Costs / Sales

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