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 Overheads are the indirect costs which cannot be

easily allocated to any specific Job, Process


because they are not capable of being identified
with any specific Job or Process. Overheads
include cost of indirect material, indirect labour,
indirect expenses which cannot be conveniently
charged to any job.
 Direct expenses refers to expenses that are
specifically incurred and charged for specific or
particular Job, Process, services, cost unit or cost
centre. These expenses are also called as
chargeable expenses.
 Classification and codification of overheads
 Classification: Codification:
• Elementwise • Straight Numbering
• Functionwise Method
• Behaviourwise
• Mnemoric Method
• Decimal Method
 collection of overheads
 Primary and Secondary distribution of overheads
using:
• Allocation
• Apportionment
• Absorption
Stores requisitions
Wage sheets
Cash book
Purchase orders and invoices
Journal entries
Other Registers and Records
 Allocation is the process by which cost items are
charged direct to a cost unit or cost centre. It is
the process of charging the traceable amount of
overhead to cost centre or cost unit. Overhead
costs by their nature cannot often be related to
one particular cost centre.

 Apportionment is the division of costs among two


or more cost centres in proportion to the
estimated benefits received, using some logical
basis.
Type of overhead Basis of apportionment

1. Rent and rates, heating, Area occupied(Floor space)


repairs, depreciation of
buildings Number of light points, area
2. Lighting occupied

4. Power Horsepower of machines or


machine hours
6. Depreciation, insurance, Book value of asset or original
repairs and maintenance of a cost
plant and vehicle
7. Personnel, Staff Welfare Number of employees or wages
paid
Canteen, wages, Cost office
8. Stores
No. of stores requisitions or
value of material issued or
value of material stored
11.Selling and Distribution Sales value
13.Advertisement Sales value

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