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Bookkeeping Concepts

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Isn't all overhead fixed?

Not all overhead is fixed. Some manufacturing overhead costs, which are also referred to as indirect factory costs, are variable.

A common example of a variable overhead cost is the electricity used to operate factory equipment. The electricity is an indirect manufacturing cost (since it is not part of the direct materials or direct labor) and the total cost of the electricity used in the factory will increase when the equipment is used to create more products. There will also be less total electricity cost when the equipment produces fewer units of output.