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P-29 P-31 P-41 P-51 P-55 P-56

Overhead constitutes all indirect materials.Introduction • Total cost of a cost centre or cost unit has been divided into two categories such as direct cost and indirect cost. All indirect costs are called overheads. indirect labor and indirect expenses • .

Classification Of Overheads Ø Based On Function Factory OHS Office & Administration Selling & distribution Based On Behavior Fixed Overheads Variable Overheads Semi-variable Overheads Semi-fixed Overhead Ø .

Cont… Ø Based On Elements Indirect Materials Indirect labour Based on Control Controllable Overheads Uncontrollable Overheads Ø .

WHAT IS ABSORPTION? • Costs apart from the prime cost are collectively called overheads. Under Absorption of Factory Overhead Over Absorption of Factory Overhead • • .

REASONS OF UNDER / OVER ABSORPTION OF OVERHEADS • Wrong estimation of overhead expenses Wrong estimation of work done Error in using method of absorption Seasonal fluctuation in overhead Under or over utilisation of capacity Wrong estimation of output • • • • • .

GLA A/c.Under Absorption Of Factory Overheads DATE PARTICULARS 1 2 3 To SLCA A/c. J/F AMOUNT 400000 10000 . WLCA A/c. J/F AMOUNT DATE PARTICULARS 200000 145000 65000 410000 410000 1 By WIP A/c. By Costing P/L A/c.

J/F AMOUNT 200000 145000 65000 40000 450000 450000 DATE PARTICULARS J/F AMOUNT 1 By WIP A/C. To WLCA A/c. 450000 . To GLA A/c.Over Absorption Of Factory Overheads DATE 1 2 3 4 PARTICULARS To SLCA A/c. To Costing P/L A/c.

TREATMENT OF UNDER OR OVER-ABSORPTION OF OVERHEADS Ø 3 Methods: Ø Writing off to costing profit and loss account Use of supplementary rate Carry forward to the next year Ø Ø .

Rates of Absorption of Overheads • Factory Overheads Direct Wages Office/Administrative Overheads Works Cost Selling and Distribution Overheads Works Cost • • .

Bases for Absorption of Factory/Works/Manufacturi ng Overheads • Direct Wages Rate Direct Material Rate Prime-Cost Rate Unit Rate Labour Hour Rate Machine Hour Rate • • • • • .

.SELLING & DISTRIBUTION OVERHEADS • The accounting of selling and distribution overhead requires three types of analysis: • According to nature or object of expenditure. By products or cost units • • . By function or cost centre.

SELLING & DISTRIBUTION OVERHEADS • • Methods As a rate per article As a % of selling price of each article As a % of works cost debit is given to cost of sales account & credit is given to the selling & distribution overhead account. for recovery of such overhead • • • .

ADMINISTRATION OVERHEAD • In small concerns administration overheads include the expenses of accounts and cost department also. Accounting treatment Apportioning administrative overhead b/w production and sales Then charging to profit & loss a/c • • • .

• • Overhead of under/over absorbed are calculated in three methods . • • Behavioral overheads are divided into fixed and variable group. After accumulation of overhead they need to be distributed appropriately. The latter head is further classified into selling and distribution overhead and administrative overhead.Conclusion • Overhead costs represent the third element of cost of product and services. • It is classified into manufacturing and non-manufacturing group.

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