What is Actual Overhead?

Actual overhead is indirect factory costs that have been incurred. This is essentially all factory costs, except for direct material and direct labor costs. Actual overhead costs cannot be directly traced to specific products or services, but are still required to ensure that the supporting operations are conducted in an efficient manner.

Actual overhead may differ from applied overhead, which can be based on a standard overhead rate that differs somewhat from the actual amount of overhead incurred.

Characteristics of Actual Overhead

The main characteristics of actual overhead are as follows:

Indirect nature. Actual overhead costs are not directly attributable to a specific product, job, or service.
Variability. Actual overhead can be fixed, variable, or semi-variable in nature.
Incurred over time. Actual overhead costs are incurred continuously over an accounting period and are recorded as they occur.
Real expenses. Actual overhead costs reflect the real expenses the business faces, as opposed to estimated or budgeted overheads.
Cannot be directly assigned. Actual overhead costs need to be allocated or apportioned to cost objects (like products or departments) using a systematic method (e.g., activity-based costing).
Affects the cost of goods sold. For manufacturers, actual manufacturing overhead directly impacts the total cost of goods produced and sold.

Examples of Actual Overhead

Examples of actual overhead costs are equipment maintenance, factory depreciation, factory insurance, factory rent, factory property taxes, factory utilities, production supervisor salaries, and production supplies.