1. Overheads include all indirect materials, indirect labor, and indirect expenses. They are classified based on function, behavior, elements, and control.
2. Absorption of overheads involves allocating overheads to work in process, finished goods, or cost of goods sold. Under or over absorption can occur due to errors in overhead estimation or capacity utilization.
3. Under or over absorbed overheads can be written off to the costing profit and loss account, a supplementary absorption rate can be used, or the difference can be carried forward to the next year.
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1. Overheads include all indirect materials, indirect labor, and indirect expenses. They are classified based on function, behavior, elements, and control.
2. Absorption of overheads involves allocating overheads to work in process, finished goods, or cost of goods sold. Under or over absorption can occur due to errors in overhead estimation or capacity utilization.
3. Under or over absorbed overheads can be written off to the costing profit and loss account, a supplementary absorption rate can be used, or the difference can be carried forward to the next year.
1. Overheads include all indirect materials, indirect labor, and indirect expenses. They are classified based on function, behavior, elements, and control.
2. Absorption of overheads involves allocating overheads to work in process, finished goods, or cost of goods sold. Under or over absorption can occur due to errors in overhead estimation or capacity utilization.
3. Under or over absorbed overheads can be written off to the costing profit and loss account, a supplementary absorption rate can be used, or the difference can be carried forward to the next year.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPTX, PDF, TXT or read online from Scribd
1. Overheads include all indirect materials, indirect labor, and indirect expenses. They are classified based on function, behavior, elements, and control.
2. Absorption of overheads involves allocating overheads to work in process, finished goods, or cost of goods sold. Under or over absorption can occur due to errors in overhead estimation or capacity utilization.
3. Under or over absorbed overheads can be written off to the costing profit and loss account, a supplementary absorption rate can be used, or the difference can be carried forward to the next year.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPTX, PDF, TXT or read online from Scribd
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
