Variable Overhead


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.

BREAKING DOWN '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.

  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 ...
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  1. How does fixed overhead differ from varied overhead?

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    In finance, the term leverage arises often. Both investors and companies employ leverage to generate greater returns on their ... Read Full Answer >>
  3. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  4. Do working capital funds expire?

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    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
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