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ÃAll the expenses over and above the prime cost are known as
overhead charges.
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Allocation is the process of identification of overheads with cost
center.
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Êe-apportionment of cverheads
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Element wise classification
Indirect Material cost can be apportioned to cost centers e.g. loose
tools, consumable stores, lubricating oil
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Ã2roduction overhead is the total indirect cost associated with
manufacturing activities, the sequence of which begins with
the procurement of materials and ends with the primary
packing of the product
Õor example,
ÃIndirect materials like lubricants, cotton waste and other
factory supplies
ÃDirect materials of small individual value
ÃPages of indirect workers
ÃÕuel and power
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ÃIt is the total cost of formulating the policy, directing the
organization and controlling the operations of an undertaking
which is not directly related to production, selling,
distribution, research or development activity or function.
Examples:
Ãcffice supplies
Ã2rinting & stationary
ÃSalaries to office staff
Ãcffice rent
Ãcffice lighting charges
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à It refers to expenses associated with the marketing & selling activities
Examples:
à Salaries & commissions of salesmen
à Travelling expenses
à Sales office expenses
à Market research
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It is the total indirect cost associated with the distribution of finished
products
Examples:
2acking charges, salaries and wages of distribution staff
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- Phich tend to be unaffected by variation in the volume of
output, they remain constant. They are related to periods, and so the fixed costs are
known as the period costs.e.g. the rent of the building or salaries of the office staff
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Tend to follow the level of activity, the variation may not be
always in the same proportion as the production or sales volume changes, but by the
large there is a linear relationship,between the variable overhead charges ,the cost
of per unit of output tends to remain constant at different levels of output.
e.g. indirect material, indirect labour, power & fuel, lighting and heating expenses
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- 2artly fixed and partly variable overhead costs
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cverheads absorbed in the production are more than the actual
overheads incurred, if actual expenses fall short of the amount
absorbed, there is a said to be an over absorption of overheads.
2roduction are less than the actual overheads incurred, if actual
expenses exceed the amount of overheads absorbed in the
production, then there is a case of under absorption.
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