Factory Overheads and Allocation Methods
What are overheads
Treatment of special items
How to absorb Factory overheads
Allocation
Apportionment
Reapportionment
Absorption
Six methods
Total of all indirect costs ( i.e. indirect material,
indirect labour and indirect wages)
Classification of overheads
By function
By elements
By behaviour
Underlined issues
Steps in distribution of overheads
Collection of overheads data
Allocation and appropriation
Re-appropriation
absorption
Apportionment to production departments
only*
Apportionment to production departments as
well as other service department
^
Non- reciprocal basis
Reciprocal basis
Simultaneous Equation Method
Repeated Distribution Method
^
for practical problems please refer to the hand outs
for practical problems please refer to the hand outs
on “overheads” given in the pdf format.
on “overheads” given in the pdf format.
Meaning
Steps
I. Computation of overhead absorption rate
^
Absorption rate=
(total overheads of cost centre)
total units of base used
Actual and Predetermined rates
Actual overhead rate
Pre determined rate
Blanket and Multiple Rates
II. Application of these rates to cost units
1.
Percentage on direct materials
2.
Percentage on direct wages
3.
Percentage on prime cost
4.
Direct labour hour rate
5.
Machine hour rate
6.
Rate per unit of production
^
for practical problems please refer to the hand
for practical problems please refer to the hand
outs on “overheads” given in the pdf format.
outs on “overheads” given in the pdf format.
“Cost Accounting” by M. N. Arora for B.com
(prog.)
“Cost Accounting” by Maheshwari and Mittal
“ overhead costing- Cost Accounting” Playlist
by “grooming Education Academy” on you
tube.
Explore the concept of factory overheads, treatment of special items, absorption methods, allocation, apportionment, and more. Learn about the classification of overheads, steps in distribution, computation of absorption rates, and practical application in cost accounting. Discover different methods of allocating overhead costs to production and service departments in this comprehensive guide.
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Presentation Transcript
What are overheads Treatment of special items How to absorb Factory overheads Allocation Apportionment Reapportionment Absorption Six methods
Total of all indirect costs ( i.e. indirect material, indirect labour and indirect wages) Classification of overheads By function By elements By behaviour
Underlined issues Steps in distribution of overheads Collection of overheads data Allocation and appropriation Re-appropriation absorption
Apportionment to production departments as well as other service department^ Non- reciprocal basis Reciprocal basis Simultaneous Equation Method Repeated Distribution Method ^ for practical problems please refer to the hand outs on overheads given in the pdf format.
Meaning Steps I. Computation of overhead absorption rate^ Absorption rate= (total overheads of cost centre) total units of base used Actual and Predetermined rates Actual overhead rate Pre determined rate Blanket and Multiple Rates II. Application of these rates to cost units
Percentage on direct materials Percentage on direct wages Percentage on prime cost Direct labour hour rate Machine hour rate Rate per unit of production 1. 2. 3. 4. 5. 6. ^ for practical problems please refer to the hand outs on overheads given in the pdf format.
Cost Accounting by M. N. Arora for B.com (prog.) Cost Accounting by Maheshwari and Mittal overhead costing- Cost Accounting Playlist by grooming Education Academy on you tube.
