An overhead is a general term often used to describe indirect costs. Indirect costs in entities providing services from infrastructure include technical overheads for program and project management, survey, investigation, design and construction supervision and corporate overheads for general management, procurement, financial services, information technology, and human resource management.
Category of overheads (CPA Australia Ltd, 2012)
Type | Examples | Common approaches |
Labour | · Amount paid in addition to direct wages (e.g. leave loading) · Amounts paid to others for direct benefit of employees (e.g. superannuation). · Unproductive time (e.g. annual and long service leave, sick leave). | Based on percentage of wages. Normally supported by time sheets and other wages records linking specific employees back to project. |
Materials | · Cost of receiving, storing and issuing materials through a store. · Delivery and transport costs | Based on total cost of store as percentage of total value of stores issued. Normally supported by materials list used on project linked back to stores records. |
Technical | Example, engineering management, investigation, survey, design and supervision. | Based on total cost of the expenditure for which the technical service is responsible for as percentage of total cost of providing the technical service. Normally linked to timesheets and/or internal charge records showing linkage back to specific projects. |
Corporate | General management and services such as financial services, purchasing, human resources, information technology, work, health and safety. | Not normally allocated unless can show direct link to specific project. |
Plant and equipment | Cost of operation, maintenance and replacement of plant and equipment | Normally charged directly to projects as internal plant hire. However, under IAS 16 “any internal profits are eliminated in arriving at such costs. |
Overheads are no different to any other asset cost in that there must be an element of cost in order to be capitalised. Most importantly, the cost is: Directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management (CPA Australia Ltd, 2012).
Reference
CPA Australia Ltd (2012). Guide to valuation and depreciation under the international accounting standards for the public sector. CPA Australia Ltd (ABN 64 008 392 452) (CPA Australia). http://www.cpaaustralia.com.au/documents/valuation-and-depreciation-public-sector.pdf
