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BUS 535 WU Wk 8 Managerial Accounting Overhead Costs Solution

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Week 8 CLA 2 Rushikesh Ajay Ambildhok Managerial Accounting – BUS 535 4/20/2021 Dr, Yvan Nezerwe Westcliff University 1. Any product-based or service-based company incurs overhead expenses. Overhead costs are the costs which are not directly related to the creation of the product or service. These are the costs required for running the business. For example, Rent, mortgage, energy bills, raw materials, salaries of employees, cost of running the research and development wing, etc. There are two broad types of overhead costs: Fixed overhead costs and Variable overhead costs. Costs that are fixed and do not change with the production output are fixed overhead costs. Whereas costs which are a function of the production output are called variable overhead costs. Examples of fixed overhead costs are rent, mortgages, fixed salaries of employees. Examples of variable overhead costs are salaries of commissioned employees, energy bills, raw materials, etc. It is essential to manage these overhead costs to ensure the financial stability of a business. An overhead rate is the overhead cost divided by the number of units produced or the units of service rendered. To predict the costs of business, the management makes a list of the predetermined variable overhead rate. This helps the company to see the different levels of the cost of production based on different levels of production. A higher volume of production does not guarantee higher sales because as the production increases the ...
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