Accounting for Overheads

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BY- Dr. Kamlesh Khosla, M.A.(Eco.), PH.D PG Diploma in PMIR & PG Diploma in Journalism and Mass Communication

Accounting of Overheads is one of the most important & technical aspect of Cost accounting. From Cost reduction & Cost control point of view, overhead play a great role. So, proper understanding of computation and accounting of overhead is must for Students of commerce.

Meaning of OVERHEADS???
• Overheads is the aggregate of indirect materials cost, indirect labour cost and indirect expenses which cannot be conveniently identified with and directly allocated to a particular cost centre or cost object. Example- Indirect Material Cost Indirect Labour Cost Indirect Expenses

Distribution Of Overheads
Step 1 -> Classification of Overheads Step 2 -> Collection of Overheads Step 3 -> Allocation of Overheads Step 4 -> Apportionment of Overheads Step 5 -> Re-apportionment of service department overheads Step 6 -> Absorption of Overheads

Classification Of Overheads
By Function
• Production Overheads • Administrative Overheads • Selling Overheads • Distribution Overheads

By Behaviour
• Fixed Overheads • Variable Overheads

By Element
• Indirect Materials • Indirect Labour • Indirect Expenses

Collection of Overheads
Collection of overheads means the collection of various items of overheads under suitable account heading and a unique Standing Order Number(S.O.N.) or Cost Account Number(C.A.N.).

Sources -> Material Requisitions -> Wages analysis Book
-> Invoices -> Cost Journal -> Subsidiary Records

Allocation Of Overheads
ITEMS OF OVERHEADS ALLOCATED Direct Materials Direct Wages Direct Expenses Direct Material Indirect Wages TOTAL OVERHEADS ALLOCATED ********* PRODUCTION DEPARTMENTS P1 P2 *********** SERVICE DEPARTMENTS S1 ********** S2 **********

Apportionment of overheads
• It is the process of charging the proportion of common items of cost to two or more cost centres on...
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