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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BY : PUAN WAN MAIMUNAH WAN ISHAK
Any indirect cost
Cost which is cannot be allocated directly to unit of production.
Including indirect raw materials, indirect labour and indirect expenses.
Departmentalization of overhead
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…
* 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.
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:
You are required to apportion the above costs to the various departments on the most equitable method.
LETS CHECK OUT THE ANSWER….
TOTAL COST :
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.
The expense of the service departments is charged out
on a percentage basis as following:
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.
Production overheads RM10000
Direct labour hours 2000 hours
Direct labour costs RM8000
Machine hours 4000 hours
Direct materials costs RM5000
Production 2500 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.
a) OAR = Budgeted Overhead Budgeted Direct labour hours
= RM5 per direct lab. hour.
b) OAR =Overhead
Direct labour costs
= 125% of direct labour costs
4000 machine hours
= RM2.50 per machine hour
Direct material costs
= 200% of direct material costs
= RM4 per unit
Lets try out that example
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