Q.Define Overhead. State the three bases on which Overhead is classified, giving one example of Overhead under each basis.

Overhead is simply the indirect share of total cost, and it can be looked at through three different lenses — what kind of resource it is, which business function it supports, and how it behaves as output changes.

Overhead is the aggregate of indirect costs that cannot be traced to a specific unit. Element-based: Indirect Material (e.g. lubricating oil). Function-based: Factory Overhead (e.g. factory rent). Behaviour-based: Fixed Overhead (e.g. insurance premium).

Overhead is the aggregate of indirect costs incurred for the business as a whole, or for a department, which cannot be identified with and directly charged to any one specific cost unit — it must instead be distributed over the units/departments that share it, on a reasonable basis.

Overhead is classified along three bases:

1. Element-based: Indirect Material, Indirect Labour, Indirect Expenses. Example: lubricating oil used across all machines (Indirect Material).
2. Function-based: Factory (Works) Overhead, Office & Administration Overhead, Selling Overhead, Distribution Overhead, Research & Development Overhead. Example: factory rent (Factory Overhead).
3. Behaviour-based: Fixed Overhead, Variable Overhead, Semi-Variable Overhead. Example: insurance premium on the factory building, which stays the same regardless of output (Fixed Overhead).

A single Overhead item is simultaneously classifiable under all three lenses at once — factory rent, for instance, is an Indirect Expense (element), a Factory Overhead (function), and a Fixed Overhead (behaviour) — exactly the same three-way classification already introduced for cost generally in the Classification of Cost chapter, now applied specifically to the indirect portion.

Students sometimes name only one classification basis when the question asks for all three, or give an example that could apply equally well to a Direct cost (e.g. citing direct material as an Overhead example) — every Overhead example must genuinely be an INDIRECT item, not traceable to one specific unit.