Accounting Methods for Overhead Calculation

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Overhead calculation is typically taken care of through a variety of different accounting methods. Learn about accounting methods for overhead calculation with help from an accounting professional in this free video clip.

Part of the Video Series: Accounting & Finance
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Video Transcript

Hi, I'm Lori Greer from Atlanta, Georgia, and I'm here to share accounting methods for overhead calculation. The hollow method in accounting is what is used to calculate overhead costs. This is done by recording the levels of activity and their associated costs each month over an appropriate period of time. You'll then want to identify the lowest and the highest months of activity. Deduct the costs of the lowest month from the cost of the highest month and the lowest number of hours from the highest number of hours. You calculate the variable rate by dividing the difference in hours by the difference in the costs. Calculate the total variable cost for either the lowest or the highest months, and then finally, you'll calculate the total variable cost for either the lowest or the highest month. Again, I'm Lori Greer from Atlanta, Georgia, and that's the accounting method for overhead calculation.

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