PA302 COST ACCOUNTING
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PA302 COST ACCOUNTING OVERHEAD. BY : PUAN WAN MAIMUNAH WAN ISHAK COMMERCE DEPART. POLISAS. WHAT IS OVERHEAD COST ? Any indirect cost Cost which is cannot be allocated directly to unit of production. Including indirect raw materials, indirect labour and indirect expenses.

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PA302 COST ACCOUNTING OVERHEAD

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Pa302 cost accounting overhead

PA302 COST ACCOUNTING

OVERHEAD

BY : PUAN WAN MAIMUNAH WAN ISHAK

COMMERCE DEPART.

POLISAS


Pa302 cost accounting overhead

WHAT IS OVERHEAD COST ?

Any indirect cost

Cost which is cannot be allocated directly to unit of production.

Including indirect raw materials, indirect labour and indirect expenses.


The classification of overhead

THE CLASSIFICATION OF OVERHEAD


Allocation and apportionment of overhead

ALLOCATION AND APPORTIONMENT OF OVERHEAD

Departmentalization of overhead

Primary Distribution

Some overhead costs can be directly identified with a particular department or cost center and can be allocated specifically to the department.

However, there are some overhead costs that cannot be identified and charged directly to a department. The costs must be apportioned to any department using such items.

Cost apportionment is the process of charging expenses in an equitable proportion to the various cost center or department.

Further about apportionment…

  • means dividing the company into segments called cost centers to which expenses are incurred.

    * Productions department

    = represents a subunit of the company where manufacturing activity takes place.

    * Service departments

    =represent cost centers which provide support for the production department.


Bases of apportionment which are common in use

Bases of apportionment, which are common in use:


Pa302 cost accounting overhead

Example 7.1

The Elegant Company has four departments.A, B and C are the production departments and D is a servicingdepartment.

The actual costs for a period are as follows:


Pa302 cost accounting overhead

  • The following data are also available in respect of the four departments:

You are required to apportion the above costs to the various departments on the most equitable method.


Do not fear of opposition and challenges remember a kite rise against the wind

Do not fear of opposition and challenges…remember a kite rise against the wind…

LETS CHECK OUT THE ANSWER….

TOTAL COST :


Pa302 cost accounting overhead

Secondary DistributionThe overhead costs of service department should be further assigned to production Departments. WHY ?Service departments do not themselves manufacture anything. The reassignment or reapportionment of service departments overhead to production department is termed secondary distribution.


2 methods of apportionment of overhead

2 METHODS OF APPORTIONMENT OF OVERHEAD


Eg 1 secondary distribution

Eg.1 (secondary distribution) :

  • Assume the following data for A. Azim Industries:

  • The departmental distribution (primary distribution) summary has the following totals:

The expense of the service departments is charged out

on a percentage basis as following:

  • You are required to show the reapportionment of overhead using continuous method.


Solution

Solution :


Example 2

Example 2 :

  • Assume the following data for A. Azim Industries:

  •  The departmental distribution ( primary distribution ) summary has the following totals:

  • The expenses of the service departments is charged out on a percentage basis as follows:

  • You are required to show the reapportionment of overhead using direct method.


Solution1

Solution :


Pa302 cost accounting overhead

  • ABSORPTION OF OVERHEAD COSTS

  • After all service departments overhead costs have been apportioned to production departments, the next step is to spread factory overhead to different products or job produced.

  • This is termed as ‘overhead absorption’.


  • Pa302 cost accounting overhead

    • Methods of Absorption

  • Some method of overhead absorption has to be applied to absorb factory overhead to individual product or jobs on some equitable basis. The rate, which is used to charge overhead costs to the products job, is known as absorption rate. The following are the generally recognized methods of absorption rate

  • The activity level that should be used are base on items such as direct labour hours, direct labour costs, machine hours, direct material costs and unit of output.


    Predetermined overhead rates

    PREDETERMINED OVERHEAD RATES


    Example 1

    Example 1:

    • The following data was collected for MM factory:

      Production overheadsRM10000

      Direct labour hours2000 hours

      Direct labour costsRM8000

      Machine hours4000 hours

      Direct materials costsRM5000

      Production2500 units

      Calculate OAR using the following bases:

      a. Direct labour hours;

      b. Direct labour costs

      c. Machine hours;

      d. Direct material costs; and

      e. Production output.


    Solution2

    Solution :

    a) OAR=Budgeted Overhead Budgeted Direct labour hours

    =10,000

    2000 DLH

    =RM5 per direct lab. hour.

    b) OAR=Overhead

    Direct labour costs

    = 10000

    8000

    = 125% of direct labour costs


    Solution3

    Solution :

    • c)OAR=Overhead

      Machine hours

       =10000

      4000 machine hours

      =RM2.50 per machine hour

    • d)OAR=Overhead

      Direct material costs

      =10000

      5000

      =200% of direct material costs

    • e)OAR=Overhead

      Production output

      =10000

      2500

      =RM4 per unit


    Example 21

    Example 2:

    • Turn to page 3 eg 8.3 ( your module)

      Lets try out that example

    Experience is not what happens to you. It is what you do with what happens to you


    Pa302 cost accounting overhead

    (b)


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