Overhead Control

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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.

Transcript of Overhead Control

Page 1: Overhead Control

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.

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Classification and codification of overheads Classification:

• Elementwise• Functionwise• Behaviourwise

collection of overheads Primary and Secondary distribution of overheads

using:• Allocation• Apportionment• Absorption

Codification:• Straight Numbering Method• Mnemoric Method• Decimal Method

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Stores requisitions Wage sheets Cash book Purchase orders and invoices Journal entries Other Registers and Records

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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.

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Type of overhead Basis of apportionment

1. Rent and rates, heating, repairs, depreciation of buildings

2. Lighting

3. Power

4. Depreciation, insurance, repairs and maintenance of a plant and vehicle

5. Personnel, Staff Welfare Canteen, wages, Cost office

6. Stores

7. Selling and Distribution

8. Advertisement

Area occupied(Floor space)

Number of light points, area occupied

Horsepower of machines or machine hoursBook value of asset or original cost

Number of employees or wages paid

No. of stores requisitions or value of material issued or value of material storedSales value

Sales value