Unit
i
71
04 : Overheads
iseti
Overheads
Overheadcost is thetotalof all indirectcosts ie indirectmaterials indirectwages and indirect
expenses Overheads are the aggregateof of all indirect expenditure
Accounting ofOverheadcosts is more complex than that of otherelementsofcost This is
Control
because overheads
by definition are indirect costs which cannot be conveniently allocated to any cost
units
Burden NonProductiv
Variousothernames
forOverheads are Oncost supplementary Cost
Cost etc
classification ofoverhead cost
overheadcosts
Functions Elements Behaviour
production indirect materials
administration indirect
wages
indirect expenses
Fmi
variable
variable
selling
distribution
Production Overheads also termedas factory or works or manufacturing overheads They are
indirect expenses incurred in connection withproduction operations It is the aggregate offactory
indirect material cost indirectwages and indirect expenses Productionoverheads are an invisible
pa
of thefinishedproduct
Examples lubricants depreciation
ofplant machinery factorypower light indirect wages
repairs etc
h.am
functions
onamaan aannamamgmmommm.ma m
generalnature and consists of all costs incurred direction control
in the and
administration
financial
control or secretarialaccounting
of an undertaking not directly related to theselling or distribution
function
Examples staffsalaries auditfees legal charges postage telephone stationary printing e
Distribution Overheads
Selling they are often referred to as afterproduction costs as they
, are incurred afterproduction is over SellingOverheads are the costof seeking to create and
stimulate demand or
ofsecuring orders
Examples advertising showroom expenses baddebts catalogues price lists
Distribution Overheads comprise
ofall expenditures incurredfromthe timeproduct is completed in the
factory till it reaches its destination or customer
Examples carriage outward packing cost warehousing cost delivery van expenses
IndirectMaterials material coststhatcannot be allocated but which are tobe apportioned to or
absorbed
bycost centres or costunits
Examples coal lubricants tools stationary etc
aementfenai.atwages matcannotbean.cat
are those but union are tobe apportioned to.name
bycost centres or costunits
Examples sweeperwages idletime wages foreman's
pay
security's
pay
indirectExpenses expensesthatcannot be allocated but which are tobe apportioned to or
absorbed
bycost centres or costunits
Examples depreciation insurance tanes power rent rates
Finedcosts these overheads remain unaffected or fined in total amount byfluctuations in the
volume
ofoutput
Examples rent rates salaries
enaviour variableoverheads costunion in aggregate anas to vary in direct proportion to changes
in volume of output Variable overheads
perunit remainfined
Examples indirectmaterials indirect labour power salesman's commission
Semivariable Overheads these overheads are partly fined partly variable They
vary in part with the volume ofproduction and in part they are constant whenever there
is a change in volume ofproduction
Examples supervisory salaries depreciation repairs and maintenance etc
StandingOrderNumbers after the overheads are classified it is found useful to
allot a number or symbol to each group of expenses so that each such group is easily
, distinguishedfrom others Suchno's or symbols are called as standing Order Numbers Each
SON denotes a particular type of expenditure so that items of expenses ofsimilar nature as
and when they are incurred are apportionately classified into one ofthose
Overheads Distribution
Overheadcosts cannot be identified with individual costunitsand there are no accounting means
exact distribution Suchcosts are analysed anddistributed to various cost centres and cost units on
arbitrary basis
The various steps takenfordistribution of overhead costs are as follows
classification ofOverheads
collection
Allocation Apportionment
ofOverheads to Production Service departments
ReApportionment ofservice department costs to production department
Absorptionofoverheads ofeachproduction department in cost units
collection
ofOverheads Theprocedure ofclassification of production overheads andofassigning
standingordernumbers Such classification codification is for the collection of
a prerequisite
overheads Production Overheads should be collected under standing order numbers The main
sourcesfrom which overhead costs are collected are as follows
indirectexpenses
Invoice
indirectmaterials
StoreRequisition
indirectwages
wage Analysis sheet
Journalentries itemsthatdonotresulti ncashoutlay requireadjustment
Allocation Apportionment ofOverheads The assignment ofwhole items ofcost directly to a
costcentre is called as Allocation Overheads can be allocatedwhen thefollowing 2 conditions ar
fulfilled costcentremusthavecaused the overheadcostto be incurred
exactamount incurred in a costcentremustbeknown
Items that can beeasily allocated are indirectmaterials idletime cost power depreci
ion supervision etc
Thedistributionofoverheads to more than one cost centre on some equitable basis is called as
Apportionment Such overhead costs donot originate from
any specific department and is
common to various cost centres it is allotted to different costcentres proportionately
i
71
04 : Overheads
iseti
Overheads
Overheadcost is thetotalof all indirectcosts ie indirectmaterials indirectwages and indirect
expenses Overheads are the aggregateof of all indirect expenditure
Accounting ofOverheadcosts is more complex than that of otherelementsofcost This is
Control
because overheads
by definition are indirect costs which cannot be conveniently allocated to any cost
units
Burden NonProductiv
Variousothernames
forOverheads are Oncost supplementary Cost
Cost etc
classification ofoverhead cost
overheadcosts
Functions Elements Behaviour
production indirect materials
administration indirect
wages
indirect expenses
Fmi
variable
variable
selling
distribution
Production Overheads also termedas factory or works or manufacturing overheads They are
indirect expenses incurred in connection withproduction operations It is the aggregate offactory
indirect material cost indirectwages and indirect expenses Productionoverheads are an invisible
pa
of thefinishedproduct
Examples lubricants depreciation
ofplant machinery factorypower light indirect wages
repairs etc
h.am
functions
onamaan aannamamgmmommm.ma m
generalnature and consists of all costs incurred direction control
in the and
administration
financial
control or secretarialaccounting
of an undertaking not directly related to theselling or distribution
function
Examples staffsalaries auditfees legal charges postage telephone stationary printing e
Distribution Overheads
Selling they are often referred to as afterproduction costs as they
, are incurred afterproduction is over SellingOverheads are the costof seeking to create and
stimulate demand or
ofsecuring orders
Examples advertising showroom expenses baddebts catalogues price lists
Distribution Overheads comprise
ofall expenditures incurredfromthe timeproduct is completed in the
factory till it reaches its destination or customer
Examples carriage outward packing cost warehousing cost delivery van expenses
IndirectMaterials material coststhatcannot be allocated but which are tobe apportioned to or
absorbed
bycost centres or costunits
Examples coal lubricants tools stationary etc
aementfenai.atwages matcannotbean.cat
are those but union are tobe apportioned to.name
bycost centres or costunits
Examples sweeperwages idletime wages foreman's
pay
security's
pay
indirectExpenses expensesthatcannot be allocated but which are tobe apportioned to or
absorbed
bycost centres or costunits
Examples depreciation insurance tanes power rent rates
Finedcosts these overheads remain unaffected or fined in total amount byfluctuations in the
volume
ofoutput
Examples rent rates salaries
enaviour variableoverheads costunion in aggregate anas to vary in direct proportion to changes
in volume of output Variable overheads
perunit remainfined
Examples indirectmaterials indirect labour power salesman's commission
Semivariable Overheads these overheads are partly fined partly variable They
vary in part with the volume ofproduction and in part they are constant whenever there
is a change in volume ofproduction
Examples supervisory salaries depreciation repairs and maintenance etc
StandingOrderNumbers after the overheads are classified it is found useful to
allot a number or symbol to each group of expenses so that each such group is easily
, distinguishedfrom others Suchno's or symbols are called as standing Order Numbers Each
SON denotes a particular type of expenditure so that items of expenses ofsimilar nature as
and when they are incurred are apportionately classified into one ofthose
Overheads Distribution
Overheadcosts cannot be identified with individual costunitsand there are no accounting means
exact distribution Suchcosts are analysed anddistributed to various cost centres and cost units on
arbitrary basis
The various steps takenfordistribution of overhead costs are as follows
classification ofOverheads
collection
Allocation Apportionment
ofOverheads to Production Service departments
ReApportionment ofservice department costs to production department
Absorptionofoverheads ofeachproduction department in cost units
collection
ofOverheads Theprocedure ofclassification of production overheads andofassigning
standingordernumbers Such classification codification is for the collection of
a prerequisite
overheads Production Overheads should be collected under standing order numbers The main
sourcesfrom which overhead costs are collected are as follows
indirectexpenses
Invoice
indirectmaterials
StoreRequisition
indirectwages
wage Analysis sheet
Journalentries itemsthatdonotresulti ncashoutlay requireadjustment
Allocation Apportionment ofOverheads The assignment ofwhole items ofcost directly to a
costcentre is called as Allocation Overheads can be allocatedwhen thefollowing 2 conditions ar
fulfilled costcentremusthavecaused the overheadcostto be incurred
exactamount incurred in a costcentremustbeknown
Items that can beeasily allocated are indirectmaterials idletime cost power depreci
ion supervision etc
Thedistributionofoverheads to more than one cost centre on some equitable basis is called as
Apportionment Such overhead costs donot originate from
any specific department and is
common to various cost centres it is allotted to different costcentres proportionately
