Basic costing/ Types of cost/Overheads
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This document discusses the collection, classification, allocation, and codification of overhead costs in cost accounting. It defines overhead as indirect materials, labor, and expenses that cannot be directly charged to a specific cost unit. The key steps in accounting for overhead are collecting data on overhead costs, classifying costs by function, behavior, element, or controllability, allocating overhead costs to cost centers or cost units, and codifying overhead codes to simplify tracking and analyzing large numbers of overhead accounts.
Basic costing/ Types of cost/Overheads
- 3. TOPIC NAME:- COLLECTION, CLASSIFICATION, ALLOCATION, CODIFICATION OF OVERHEAD
- 4. BRANCHES OF ACCOUNTING BOOK-KEEPING FINANCIAL ACCOUNTING COST ACCOUNTING MANAGEMENT ACCOUNTING
- 5. COST ACCOUNTING COST ACCOUNTING IS THE CLASSIFICATION,RECORDING, AND APPROPRIATE ALLOCATION OF EXPENDITURE FOR THE DETERMINATION OF THE COSTS OF THE PRODUCT OR SERVICES
- 6. ELEMENT OF COST MATERIAL LABOUR EXPENSES COST COST DIRECT DIRECT INDIRECT INDIRECT DIRECT INDIRECT MATERIAL EXPENSES EXPENSES MATERIAL LABOUR LABOUR OVERHEAD
- 7. OVERHEAD OVERHEAD MAY BE DEFINED AS THE COST OF INDIRECT MATERIALS , INDIRECT LABOUR AND SUCH OTHER EXPENSES INCLUDING SERVICES WHICH CANNOT CONVENIENTLY BE CHARGED TO A SPECIFIC UNIT (I.E. INDIRECT EXPENSES). Objective of study of overhead costs 1)to link the overheads to output 2)to control overhead
- 8. PRODUCTION OVERHEADS Overheads means all indirect costs which are part and parcel of the total cost of production. But there is a great difficulty to know the amount if indirect cost of which a final output should bear. Because there is no direct relationship between indirect cost(overhead) and the production. Therefor through different stages of distribution of oh these are finally charged(i.E.ABSORBED) to the final output there are some stages to distribute the overhead
- 9. Stages of distribution 1) COLLECTION 2) CLASSIFICATION 3) ALLOCATION 4) APPORTIONMENT 5) RE-APPORTIONMENT 6) ABSORPTION OF OVERHEAD
- 10. COLLECTION OF OVERHEAD This Involves Collection And Accumulation Of Data Relating To Overheads Based On Past Information And Adjusted For Known Current Trends And Projected Into The Future. Information Collected From 1) Invoices (INDIRECT 2) Stores Requisition MATERIAL) 3) purchase requisition 4) Wages Analysis Book (indirect Labour) 5) Journal Entries (indirect exp.)
- 11. Classification of overhead classification involves two processes firstly the specification of definite groups according to which the expenses should be classified and secondly ,the placing of several types of expenses into one or the other of these groups according to their common characteristics Overhead Are Classified According To Nature or Function . This Facilities Decision- making And Proper Budgeting.
- 12. CLASSIFIATION OF OVERHEAD BY BY BY BY FUNCTIONAL BEHAVIOURWISE ELEMENTWISE CONTROLLABILITY Factory Fixed Ind. Controllable exp. exp. material exp. Selling Variable exp. exp. Ind. Labour Uncontrolla -ble exp. Distribution Semi Ind. exp. variable expenses exp.
- 13. ALLOCATION OF COST Allocation Of Overhead Means, Whole Items Of Overheads Are Allocated To Production And Service Departments. Cost Allocation Is Defined As The Allotment Of Whole Items Of Cost To Cost Centers Or Cost Unit e.g. indirect wages of production dept. ‘A’ is to be allocated to dept. ‘A’ only. Similarly, wages of service dept. ’S’ is to be allocated to dept. ‘S’ only.
- 14. Allocation of overhead should meet both the following condition 1) the cost centers must have caused the overhead to be incurred 2) the exact amount incurred in a cost centers must be known.
- 15. ADVANTAGES OF ALLOCATION OR DEPARTMENTALISATION 1) BETTER ESTIMATION OF EXPENSES 2) BETTER CONTROL 3) ASCERTAINMENT OF COST FOR EACH DEPARTMENT 4) SUITABLE METHOD OF COSTING.
- 16. Allocation and apportionment these terms are quit same like they charged expenses to cost centers but exact meaning of these term’s is different i.e. POINT OF ALLOCATION APPORTIONMENT DIFFERENTIATION MEANING IDENTIFYING A COST ALLOTMENT OF CENTERS AND CHARGING PROPORTIONS OF IT’S EXPENSES IN FULL. COMMON COST TO VARIOUS COST CENTERS. NATURE OF EXPENSES SPECIFIC AND GENERAL AND COMMON IDENTIFIABLE NUMBER OF COST ONE MANY CENTERS AMOUNT OF OVERHEAD CHARGED IN FULL CHARGED IN PRAPORTIONS
- 17. CODIFICATION OF OVERHEAD It Is Technique Of Intelligently Describing In Numbers/Letters Or A Combination Of Both, For The Lengthy Description Of Numerous Cost Accounting. OBJECTIVES 1) group items of similar nature that are amenable to apportionment of OH exp. On the same basis 2) to carry out an analysis of overhead exp. For control Purposes 3) to reduce the task of maintaining a huge numbers of account
- 18. Methods of codification of overheads 1)Serial Number System 2)Decimal System 3)Alphabetical System 4)Combination Of Alphabetical And Numerical System 5)Numerical Code