Accounting for overheads
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ACCOUNTING FOR OVERHEADS. BY- Dr. Kamlesh Khosla M.com, M.A.(Eco.), PH.D PG Diploma in PMIR & PG Diploma in Journalism and Mass Communication . INTRODUCTION.

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ACCOUNTING FOR OVERHEADS

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Accounting for overheads

ACCOUNTING FOR OVERHEADS

BY- Dr. Kamlesh Khosla

M.com, M.A.(Eco.), PH.D

PG Diploma in PMIR &

PG Diploma in Journalism and Mass Communication


Introduction

INTRODUCTION

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

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

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

Classification Of Overheads


Collection of overheads

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

Allocation Of Overheads


Apportionment of overheads

Apportionment of overheads

  • It is the process of charging the proportion of common items of cost to two or more cost centres on some equitable basis.

    PRINCIPLES FOR APPORTIONMENT OF OVERHEADS

  • Actual Benefit

  • Potential Benefit

  • Ability to pay

  • Specific Criteria/Survey method


Basis of apportionment

Basis Of Apportionment


Secondary distribution of overheads

Secondary Distribution Of Overheads

It means the apportionment of overheads of service departments among the production departments on some suitable basis.

METHODS

  • On Non Reciprocal Basis/Step ladder method

  • On Reciprocal Basis-

  • Simultaneous Equation Method

  • Repeated Distribution Method

  • Trial & Error Method


Methods of absorption of overheads

Methods Of Absorption Of Overheads

Overhead Absorption Rate =

Total overheads of cost centre/ Total Quantum of base

METHODS

  • Percentage Of Direct Material Cost

  • Percentage of Direct Labour Cost

  • Percentage of Prime Cost

  • Direct Labour Cost

  • Machine Hour Rate

  • Rate Per Unit Of Production


Accounting for overheads

  • Percentage of Direct Material Cost

    Factory Overhead Rate = Amount of Production overheads/ Direct Cost Material x 100

  • Percentage Of Direct Labour Cost

    Factory Overhead Rate = Amount Of Production Overheads/ Direct Labour Cost x 100

  • PercentageOf Prime Cost Method

    Factory Overhead Rate = Amount Of Production Overheads/ Prime Cost x 100


Accounting for overheads

  • Direct Labour Hour Rate

    Factory Overhead Rate = Amount Of Production Overheads/ Direct Labour Hours

  • Machine Hour Rate

    Factory Overhead Rate = Amount of Production Overheads/ Machine Hours

  • Rate Per Unit Of Production

    Factory Overhead Rate = Amount Of Production Overheads/ No. of Units of Production


Computation of machine hour rate

Computation Of Machine Hour Rate


Accounting for overheads

THANK YOU !!!


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