Mention the meaning of fixed overhead.

Fixed overhead refers to those manufacturing or production costs that remain constant in total amount regardless of the level of production activity within a certain range. These costs are not directly traceable to specific units of output and do not vary with changes in production volume.

Key Characteristics of Fixed Overhead:

• Fixed in total: Remains unchanged regardless of production volume (e.g., rent, insurance, depreciation of machinery, property taxes).
• Variable per unit: Decreases per unit as production increases (e.g., if rent is Rs. 50,000/month, it remains Rs. 50,000 whether 100 or 1,000 units are produced, but per-unit cost drops from Rs. 500 to Rs. 50).
• Committed vs. Discretionary:
  • Committed: Long-term, unavoidable (e.g., lease payments).
  • Discretionary: Can be adjusted (e.g., advertising, research).
• Relevant for decision-making: Helps in pricing, break-even analysis, and cost-volume-profit relationships.

Fixed overhead is allocated to products using methods like absorption costing (e.g., per unit, machine hours, or direct labor hours) to determine full product costs. It contrasts with variable overhead, which changes with production levels.