OVERHEAD ANALYSIS

OVERHEAD ANALYSIS PowerPoint PPT Presentation


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OVERHEAD ANALYSIS

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1. OVERHEAD ANALYSIS

2. Three elements of Cost

3. ‘Other Expenses'

4. They fall into 3 groups –

5. Prime Cost + Manufacturing Overheads = TOTAL COST

6. COST CENTRES In order to control costs it is necessary to trace them to the area responsible for the costs.

7. 2 types of Cost Centre

8. A Cost Unit is the final product or service being costed Examples of Cost Units might be:

9. HOW TO TRACE COSTS TO COST CENTRES Step 1

10. Allocation of Costs to Cost Centres

11. Indirect Costs

12. Apportionment of Costs Overhead Cost Basis of Apportionment

13. Step 2

14. Basis of Apportionment Service Overhead Cost Basis of Apportionment

15. Step 3

16. Bases for Absorbing Overhead Costs:

17. Alternative Overhead Absorption Rates

18. SUITABILITY OF DIFFERENT OVERHEAD ABSORPTION OR RECOVERY RATES

19. All the other Overhead Absorption bases generally do not allow for the time element but nonetheless are often used:

21. ACTUAL OVERHEADS AND PREDETERMINED/BUDGETED OVERHEADS

22. The way round this problem is to use PREDETERMINED or BUDGETED Overhead Costs.

23. What this means is that when we come to the end of the accounting period the actual overhead costs incurred will in all probability differ from the overheads absorbed into the cost units.

24.  EXAMPLE – OVERHEAD UNDERABSORBED

25. Step 1

26. Step 3

27. EXAMPLE – OVERHEAD OVERABSORBED Cost Centre A Budgeted Data Actual Data Overheads £50,000 £49,400 Direct Labour Hours 5,000 hours 4,950 hours   Calculate the overabsorption of overheads.  

28. Step 1

29. Step 3

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