Variable Overhead

AAA

DEFINITION of 'Variable Overhead'

The indirect costs of operating a business that fluctuate somewhat with the level of business activity, but are incurred even if business activity is minimal. While most overhead costs such as rent, salaries and insurance are typically fixed, overhead costs that increase with higher business activity and decrease with lower business activity are termed as variable overhead. These usually consist of indirect material, indirect labor and other costs that cannot be directly allocated to a specific product, such as expenses for utilities and equipment maintenance.

INVESTOPEDIA EXPLAINS 'Variable Overhead'

For example, utility expenses for electric power are incurred by a manufacturing plant every month; the actual amount owed for such expenses depends on the level of manufacturing output. However, even if the plant produces no output in a given month – for reasons such as a labor dispute or shortage of a critical input material – it still needs to "keep the lights on" in order to keep the plant in working condition, and will be billed by the utility accordingly.

RELATED TERMS
  1. Underapplied Overhead

    An accounting record in cost accounting where the overhead costs ...
  2. Absorbed Cost

    The indirect costs that are associated with manufacturing. Absorbed ...
  3. Overhead Rate

    In managerial accounting, a cost added on to the direct costs ...
  4. Applied Cost

    A term used in cost accounting to denote the cost assigned to ...
  5. Variable Cost

    A corporate expense that varies with production output. Variable ...
  6. Overhead

    An accounting term that refers to all ongoing business expenses ...
Related Articles
  1. Active Trading Fundamentals

    Bet Smarter With The Monte Carlo Simulation

  2. Fundamental Analysis

    Vital Link: Manufacturing And Economic ...

  3. Investing

    Doing More With Less: The Sales-Per-Employee ...

  4. Investing

    Operating Leverage Captures Relationships

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center