Overhead Costs Management

Overhead Costs Management

Understanding Overhead Cost:

overhead cost is composed of Direct cost and indirect cost. 

Indirect Cost:

This is the cost that affects the production process but indirectly, for example: 
  1. Supervisors/Mangers salaries.
  2. Electricity Cost
  3. Gas Cost
  4. Water cost
  5. Worker Transportation
 Lets take an example on how to calculate the indirect cost: lets say that you pay for Electricity= 50000 per month, Gas= 60000 per month, Water= 70000 per month and worker transportation= 80000 per month. we're going to calculate the indirect cost using the following steps:
  1. First of all we're going to know how many working days are in a month, for this example we are going to say that we have 26 working days, so we are going to use this information. 
  2. Then we are going to calculate the cost per minute for each indirect cost mentioned above. for example the Electricity cost is going to be divided by the no. of working days per month, then this value is going to be multiplied by the no. of machines available in the whole factory in this example we will say we have a total of 10 machines, then it's going to get multiplied by the number of hours per shift worked. for this example we are going to take the main shift which has 8 hours, then we multiply this value by 60 mins to get the cost of electricity per minute
    1. Cost or Electricity/minute = (Electricity Cost per month)/(Working days per month x Total number of machines                                                                                                              x Shift Hours x 60 min )
    2. Cost of Electricity/minute = (50000)/(26x10x8x60) = 0.4, so the cost of electricity per minute is equal to 0.4. and we are going to do the same for every indirect cost we have. This information is then added to the system using the following steps:
      1. Navigate to the "Finance" section and select "Overhead Costs."
      2. Click on the "+" button to add a new overhead cost.
      3. The user will be prompted to enter the overhead code, name, and cost per minute for one machine.
      4. Select the desired date for the cost to be calculated in the system.
      5. Save the overhead cost entry.

Additionally, users have the option to update old overhead costs. They can access the overhead costs table and make edits by adding a new date with a revised cost. The table provides information such as the overhead code, name, and cost per minute for one machine.

Users are advised not to wait for an extended period before updating the overhead costs. It is not recommended to postpone these updates for a significant duration. This is because the system performs a comprehensive update for all data on the specified date when an overhead cost is modified. As a result, if there is a considerable time gap between updates, the system may experience an overload and slower performance.

To ensure the smooth operation of the system and avoid potential performance issues, it is best practice to review and update overhead costs on a regular basis. Monthly reviews are suggested, allowing users to make timely adjustments to reflect any changes in the cost structure accurately.

By adhering to this recommendation, users can maintain an optimal system performance while staying up to date with the latest overhead cost information for effective financial management.


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