Define Overheads. What are the various methods of classifying overheads. Discuss functional classification.

Overheads refer to indirect costs incurred by a business in its operations. These costs cannot be directly attributed to a specific product, service, or department but are necessary for the overall functioning of the organization. Overheads encompass various expenses such as rent, utilities, administrative salaries, depreciation of assets, and other general expenses essential for running the business.

Various Methods of Classifying Overheads:

Overheads can be classified into different categories based on various criteria, each offering insights into cost management and allocation strategies. The methods of classifying overheads include:

1. Functional Classification:
   - Production Overheads: These overheads are directly related to the manufacturing process and include expenses like factory rent, utilities, maintenance of machinery, and depreciation of production equipment.
   - Administrative Overheads: Administrative overheads pertain to the management and administrative functions of the business. These include salaries of administrative staff, office rent, office supplies, and other general administrative expenses.
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