OVERHEADS: APPORTIONMENT AND ABSORPTION

COST ACCOUNTING
M A D E BY: A J AY K U M A R SALONI NANDA
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Overheads
few more names
Overhead expenses Overhead Cost Overhead Charges Overhead expenditure On cost Supplementary costs Non-productive costs Burden Costs Loading Costs Indirect Cost
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OVERHEADS

SUM OF INDIRECT MATERIALS,INDIRECT WAGES AND INDIRECT EXPENSES

Cost of Indirect materials, indirect labour and such other Expenses including services which cannot be conveniently charged to specific unit

DEFINITION OF OVERHEADS

Overheads are costs which do not relate solely to the cost units and must be shared equally between them. Sum of indirect materials, indirect wages and indirect expenses.
Cost of Indirect materials, indirect labor and such other Expenses including services which cannot be conveniently charged to specific unit

Features of Overhead Expenses

OHEs are indirect Costs They are common Costs They include both escapable and inescapable costs They comprise of cash expenses (rent) and book expenses (Depreciation) They include Both Production & non- production expenses (AOH &SDOH) They both fixed and variable
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CONTOL OF OVERHEAD 1. CLASSIFICATION 2 CODIFICATION 3 COLLECTION 4 ALLOCATION & APPORTIONMENT TO COST CENTRES 5 ABSORPTION TO COST OF PRODUCTS ,SERVICES
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Functional

Behaviour

Overhead Classification Elements

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Controllability

Factory

Selling

Functional

Administration

Distribution

Factory

Indirect labor

Indirect Materials
Lubricants Repair Materials Cotton Waste Factory Supplies Hardwares9Screws Paints etc

Indirect Expenses
Rent, Rates, Insurance Power, lighting, heating Depreciation, repairs & Maintenance of P&M, Furniture, building Canteen, welfare etc

Supervisors, foreman Inspectors Storekeepers Maintenance labor Work's Clerical Welfare Staff Tool Room operator Watch & Ward Staff Works Manager

Indirect Labor
Administration Office Clerks Accountant ants Managers Secretaries Executives Directors

Indirect Materials
Office Stationery & Printing Office Supplies

Indirect Expenses
Rent, Rates Lighting, heating, cleaning Postage, telephone, courier Depreciation & Maintenance Legal Charges, Audit Fee, Bank Charges

Indirect Materials
Selling Stationery & Printing Catalogues, Price Lists, Samples, Packing Materials

Indirect Labor Sales men Remuneration, Travelling Exp, Agents Comm., Demonstrators, Sales Office Clerks

&

Distribution

Indirect Expenses
Rent Rates and Insurance of Show rooms, Sales Office, Warehouse, Advertising, After Sales Services, Discounts, Bad debts Delivery Expenses, Ware house Expenses, Reconditioning Of Returned Containers

On the basis of behavioral classification

Fixed
Rent Of Building, Property Taxes Salaries, Depreciation, Insurance Audit fee, Certain office Expenses, Pension & PF etc

Variable
Power & Lighting, indirect Materials Indirect Labor Cost Of Lubricants, Internal Transport Overtime Premium, Tools & spare parts

Semi Fixed/Variable
Normal Maintenance Wages Of Supervisors Telephone Service Department Power & lighting

ELEMENT WISE
INDIRECT MATERIALS INDIRECT WAGES Inspectors Supervisors Clerks Salesmen Executives Directors Managers Warehouse staff Store keeper Idle time Overtime Holiday wages INDIRECT EXPENSES Rent , Rates, Taxes Insurance Canteen Depreciation Repairs Maintenance heating Power Lighting Hospital, dispensary Distribution

Fuel Lubricating oil, consumable stores Small tools, Sundry stores Cotton waste Samples, stationery Price lists

Controllability

Controllable Variable

Controllable Variable

Principal Basis of Apportionment Of Overheads

Floor Area

Capital Value Of Assets

Number Of Employees

Machine Hours
Direct Labour Hours

Light Points
Kilowatt Hours

Technical Analysis

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BASIS FOR APPORTIONMENT

Rent, Rates & Taxes, Lighting & Heating Insurance & depreciation of Building, Cost of repairs & maintenance of Building, Air Conditioning

Floor Area Occupied

Insurance & Depreciation on Plant & Machinery, maintenance of PM, Insurance on building, etc

Capital Value

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BASIS FOR APPORTIONMENT No. Of Employees

Welfare Expenses, time-Keeping ,pay-roll Office, Canteen, Recreation, Supervision Medical Expenses

Repairs & Maintenance of Plant & Machinery

Machine Hours

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BASIS FOR APPORTIONMENT

Direct Labour Hrs
Works Managers Remuneration, Salary of Supervisors etc

Light Points Or Kilowatt Hours

Electricity Charges

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BASIS FOR APPORTIONMENT

Technical Estimate

Where not possible to apportion on some Bases Technical estimate is made

Horse Power

Motive Power Expenses

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BASIS FOR APPORTIONMENT

Value or Weight of Materials

Store Keeping Expenses

Truck Mileage Tonnage Truck Hours No. Of Packages

Transport Service Expenses

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Quick Check
Identify the Basis for following Overheads
Rent Plant Repairs Depreciation of Building Building Repairs Insurance Of Building Fire Insurance of Stock Lighting Expenses Supervision Power Employers Cont. to PF Amenities To Staff Canteen Gn. Overheads No. Of Employee Floor Area Value Of Building Floor Area Value Of Stock No. Of Light Points No. Of Employees Kilowatt/Value of Plant Direct Wages Direct Wages Machine Hours/HP/VM Value of Plant Direct Wages
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