Costing for Direct Expenses and Overheads

Instructor’s Manual
Costing for Direct
CHAPTER
FIVE Expenses and
Overheads

The rapturous, wild and ineffable pleasure of drinking at somebody else’s expense.
Henry Sambrooke Leigh

Learning Outcomes
The study of this chapter should enable students to:
 identify the concept of direct expenses
 explain how direct expenses are traced to products
 explain the concepts, procedures, methods and techniques of overhead costing and control
 describe the mechanics of overhead costing and control
 discuss the importance of overhead costing and control in reducing costs and enhancing
profitability
 discuss the concepts, features and mechanics of activity based costing

Instructor’s Focus
❏ Introduce direct expenses by defining and describing the treatment of direct expenses.
❏ Introduce overhead costs by defining and describing what overhead costs embraces, how overhead
costs are classified, sources of overheads and how overheads are distributed to production and
service departments.
❏ Describe and explain cost allotment which involves allocation, apportionment, reapportionment
and absorption making reference to Figure 5.2.
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OV E R H E A D
Repairs, maintenance, supervision, rent, etc.

APPORT IONMENT

P R O D U C T I O N D E PA R T M E N T S S E RV I C E D E PA R T M E N T S
A B X Y

REAPPORT IONMENT

Reapportionment Service Department Costs

ABSORPTION to Production Departments

PRODUCTS

Figure 5.2  Apportionment, reapportionment and absorption of overhead

❏ Work through the worked examples on allocation, apportionment, reapportionment and

absorption.
❏ Introduce, discuss and illustrate by means of worked examples predetermined absorption rates,
and under-or-over absorption of overheads and how they are accounted for.
❏ Introduce and describe non-production overheads.
❏ Describe the steps involved in accounting for overheads.
❏ Introduce, discuss and explain by means of worked examples depreciation, methods of depreciation
and how depreciation is accounted for.
❏ Introduce, discuss and explain by means of a worked example activity based costing.
❏ Work through the Comprehensive Examples that integrates the concepts and mechanics of
overhead costing and activity based costing.
❏ End the chapter with a discussion of the case and arrive at a decision centred around the solution
offered.
❏ Conclude the chapter by solving the structured and multiple-choice questions.