Analysis of Overhead
Overhead expenses are incurred under number of heads. Many of them do not have a direct relationship to volume of production and sale. But they are incurred to support production and sales only. They may be semi-fixed and semi-variable costs. Each overhead expense item must have a planned or budgeted amount. During the planning exercise, the benefit of the expenditure needs to be estimated and this benefit has to be more than the overhead cost to justify incurring it.
We have to predict expenses for the future and make some person or persons accountable for controlling the expenses to the prediction. Once a prediction has been made and budgeted, some body has to remember the budget and repeatedly compare the expense incurred at an instant with the plan and strive to see that activities are completed within planned resources. One cannot have to attitude of doing something at some cost and in some time. Everyday people need to know what was the plan of the day and they have to be conscious of it throughout the day as they change their pace over the day.
Predicting expenses is ordinarily a part of budgeting.
Setting Your Expense Budgets