The indirect costs of operating a business that fluctuates somewhat with the level of business activity. While most overhead costs such as rent, salaries, and insurance are typically fixed, overhead costs that increase with higher business activity and decrease with lower business activity are termed as variable overhead.
For the building & remodeling contractor Variable Overhead should represent all operating expense generated by the field personnel. These are costs that would not occur if no field personnel were employed. Variable cost will fluctuate directly with the amount of people a company employees as part of it production labor force
For the building & remodeling contractor variable overhead costs typically consist of:
- FICA & Medicare
- State Unemployment Tax
- Federal Unemployment Tax
- Worker’s Compensation
- Paid Holidays
- Paid Vacation Days
- Medical Benefits & Insurance
- Education & Training Costs
- Vehicle Payments & Depreciation
- Gas & Oil
- Cell Phone
- Vehicle Maintenance
- Tools and equipment you will need to provide a specific individual to do the work you plan on having them perform
- Uniforms & Cleaning expenses for an individual
Variable Overhead Cost will fluctuate in proportion to the number of people a company employs. Again in other words, if you weren’t employing a particular individual you would not have these Overhead Costs to recover.
(important see also Fixed Overhead)
Other Definitions
Variable Overhead– Variable Overhead should represent all operating expense generated by the field personnel. These are costs that would not occur if no field personnel were employed. Variable cost will fluctuate directly with the amount of people a company employees as part of it production labor force (important see also Fixed Overhead)
Variable Overhead– Overhead costs that change as a result of changes in production volume, but can not be directly traced to a given product or line. Ex.- utility costs that increase for a given facility in proportion to increased overall levels of production. (Bridgefield Group ERP-Supply Chain Glossary)
