Accounting Report: Overhead Analysis and Examples for Business Finance

This report provides an analysis of overhead costs in accounting, emphasizing their significance in business operations and financial reporting. It defines overhead costs as essential expenses, such as depreciation and selling, general, and administrative expenses, that support revenue generation but are not directly tied to specific products or services. The report highlights the importance of monitoring and controlling overhead costs, as they can significantly impact a firm's profitability. A case study of McDonald's is presented, illustrating the types of overhead costs the company incurs, such as depreciation and selling, general, and administrative expenses. These costs are compared to the company's financial data, and their impact on the business is discussed. The report also references accounting principles and practices to provide a comprehensive understanding of overhead costs and their management.

Running head: ACCOUNTING
Accounting
University Name
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Authors’ Note

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Overhead:
Overhead indicates towards specific costs that do not directly generate firm’s revenue but are
essential to operate a business (Kaplan et al., 2013). Overheads tend to be fixed in nature and
alter less frequently from time to time or with level of sales.
Examples of overhead are as follows:
- Depreciation
- Property taxes and rent among many others
- Insurance
- Advertising
Advantages and disadvantages
Fundamentally, overhead provides vital support for the purpose of generating profit making
actions although this cannot be directly associated to any particular business action, any
specific product or else service. There is a subset of overhead namely manufacturing
overheads that helps in understanding overhead costs that a firm incurs in the process of
manufacturing. Yet another subset is the administrative overhead that refers to the overhead
expenses that a firm bears for general as well as administrative activities of a business.
Let us consider the case of Mc Donald’s that is a well known fast food chain of restaurants.
The firm has several product lines as mentioned below:
-Burgers and sandwiches (Big Mac)
-Drinks (namely ,McCafé beverages

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-Snacks and sides
-Desserts and many others
Let’s say, the business corporation Mc Donald’s has an overhead cost (selling, general as
well as administrative expenses) of $2384 recorded during 2016 as compared to the year ago
figure of $2434 in 2015 ("McDonald’s – Official Global Corporate Website :: McDonald’s",
2017). These figures are registered in the annual report of the company declared during the
year 2016.
Table: Selling, General as well as administrative Expenses- Mc Donald’s
Other overhead cost incurred by the company includes depreciation that is recorded to be
$(13185.8) ("McDonald’s – Official Global Corporate Website :: McDonald’s", 2017)
Essentially, the overhead costs matters as these are to certain extent fixed costs that do not
make movements with costs of goods sold (COGS). Therefore, it can be hereby said that
overhead costs necessarily have the need to be monitored and controlled. As they are not

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directly associated to revenues, overheads can be a major part of the overall expenses or
burden of the firm, soaking up the profits. Thus, it can help in direct operations along with
profit reporting.

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References
Kaplan, R. S., Atkinson, A. A., & Morris, D. J. (2013). Advanced management
accounting (Vol. 3). Upper Saddle River, NJ: Prentice Hall.
McDonald’s – Official Global Corporate Website :: McDonald’s.
(2017). Corporate.mcdonalds.com. Retrieved 22 September 2017, from
http://corporate.mcdonalds.com