Overhead Rate

  

Just see: Overhead Ratio and do the fractions on your own. It won't hurt...much.

Related or Semi-related Video

Finance: What is overhead?14187 Views

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finance a la shmoop. what is overhead? it's a bird it's a plane it's Shmooperman!

00:10

yeah okay we couldn't resist. any on its overhead but has nothing to do with [man wearing cape flies across the sky]

00:15

overhead. alright your company is slink Inc. you make yes of course slinkys. they

00:22

walk downstairs a loner in pairs and make a slinkity sound.

00:26

yeah those. your primary costs in making them are miles and miles and miles of

00:30

flattish wire that kind of smells funny. and then a twisty machine thing then you

00:36

heat them up so they remain in that slinky shape forever and well you're

00:40

pretty much. done sorta. you've made the product but like where does that product

00:45

to live? well you store it here in the slinky condo birthing chamber and you [slinky in a log cabin]

00:50

have to rent the warehouse where all of these things live until they get shipped

00:54

off to you know the good boys and girls and men with midlife crises all around

00:59

the world. all right well that rent is overhead. the shipping of the product

01:03

overhead. insurance you need to maintain so that if a slinky drops on someone's

01:08

head and spins their hair all around they have to shave or at least that's

01:12

the reason we're giving for our baldness at home. that insurance overhead. the

01:17

lawyers who had to defend that a head case yep overhead. overhead is basically

01:23

everything that isn't directly useful at least in getting a product built and

01:28

bought. and it's usually a fixed cost meaning that you can't usually get rid

01:32

of overhead no matter how hard you try. like rent lawyers insurance yeah go

01:36

negotiate with them. they charge what they charge each month and there's just

01:40

not a whole lot you can do about it even if you want it to. oh and the CEO of the [woman throws stacks of cash on a desk]

01:45

company the one who meets with Wall Street people and shakes hands with the

01:48

people at Amazon well she's overhead. - yeah they really

01:51

should put a warning on those things. [man frowns]

Up Next

Cost Accounting: How Do You Properly Account for Overhead?
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How do you properly account for overhead? Overhead has to be accounted for by dividing the overhead amount by the recorded number of labor hours to...

Find other enlightening terms in Shmoop Finance Genius Bar(f)