OVERHEADS

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ROHIT SANKHE SACHIN GOLAMWAR SUSHANT NADARGE JYOTI RAJAVAT SUHAS TOMPE SONAL MACHALE

P-29 P-31 P-41 P-51 P-55 P-56

Introduction

Total cost of a cost centre or cost unit has been divided into two categories such as direct cost and indirect cost. All indirect costs are called overheads. Overhead constitutes all indirect materials, indirect labor and indirect expenses

Classification Of Overheads

Based On Function Factory OHS Office & Administration Selling & distribution

Based On Behavior Fixed Overheads Variable Overheads Semi-variable Overheads Semi-fixed Overhead

Cont

Based On Elements Indirect Materials Indirect labour Based on Control Controllable Overheads Uncontrollable Overheads

WHAT IS ABSORPTION?

Costs apart from the prime cost are collectively called overheads. Under Absorption of Factory Overhead Over Absorption of Factory Overhead

REASONS OF UNDER / OVER ABSORPTION OF OVERHEADS

Wrong estimation of overhead expenses Wrong estimation of work done Error in using method of absorption Seasonal fluctuation in overhead Under or over utilisation of capacity Wrong estimation of output

Under Absorption Of Factory Overheads

DATE PARTICULARS 1 2 3 To SLCA A/c. WLCA A/c. GLA A/c. J/F AMOUNT DATE PARTICULARS 200000 145000 65000 410000 410000 1 By WIP A/c. By Costing P/L A/c. J/F AMOUNT 400000 10000

Over Absorption Of Factory Overheads

DATE 1 2 3 4 PARTICULARS To SLCA A/c. To WLCA A/c. To GLA A/c. To Costing P/L A/c. J/F AMOUNT 200000 145000 65000 40000 450000 450000 DATE PARTICULARS J/F AMOUNT 1 By WIP A/C. 450000

TREATMENT OF UNDER OR OVER-ABSORPTION OF OVERHEADS

3 Methods:

Writing off to costing profit and loss account Use of supplementary rate Carry forward to the next year

Rates of Absorption of Overheads

Factory Overheads Direct Wages Office/Administrative Overheads Works Cost Selling and Distribution Overheads Works Cost

Bases for Absorption of Factory/Works/Manufacturi ng Overheads

Direct Wages Rate Direct Material Rate Prime-Cost Rate Unit Rate Labour Hour Rate Machine Hour Rate

SELLING & DISTRIBUTION OVERHEADS

The accounting of selling and distribution overhead requires three types of analysis:

According to nature or object of expenditure. By function or cost centre. By products or cost units

SELLING & DISTRIBUTION OVERHEADS

Methods As a rate per article As a % of selling price of each article As a % of works cost debit is given to cost of sales account & credit is given to the selling & distribution overhead account, for recovery of such overhead

ADMINISTRATION OVERHEAD

In small concerns administration overheads include the expenses of accounts and cost department also. Accounting treatment Apportioning administrative overhead b/w production and sales Then charging to profit & loss a/c

Conclusion

Overhead costs represent the third element of cost of product and services.

It is classified into manufacturing and non-manufacturing group. The latter head is further classified into selling and distribution overhead and administrative overhead.

Behavioral overheads are divided into fixed and variable group. After accumulation of overhead they need to be distributed appropriately.

Overhead of under/over absorbed are calculated in three methods