Overhead costs - all that is not directly related to the product

In the total product cost there are also, in addition to direct material and direct process, a number of company costs that have to be covered.
These costs are normally summarised on a regular basis and some more or less creative ways to distribute them on the sold products or services are defined. In the end of each period one hopes that the aggregated value of OH contribution per piece is at least the same as the total indirect cost.

For example there is often a percentage figure added on material price to cover for material handling or an extra amount per worked hour to cover production management, supplies, maintenance and capital costs.

In most cases the base for the added figure has a very small relevance to the indirect cost. For instance an improved set-up time does not decrease the need for factory building maintenance.
One needs to be aware of these calculus phenomena when entering new improved conditions into the total cost calculus.

If the studied cost or price has a substantial OH portion one needs to address that. The OH cost analysis does this.

As always it is necessary to understand what actual costs are involved and why they are as big as they are. By understanding this one can start to be creative on how to affect them.

The OH analysis could be described as a mix of Kaizen and Value Analysis.
The indirect costs are often generated by some processes.
The Kaizen approach is used to map and quantify them but in order to affect them we need to understand what functions or demands that drive the costs. For that understanding we use the Function Cost Analysis in the VA process.
This is sometime labelled business process reengineering.