Understanding Factory Overheads and Allocation Methods
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.
