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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.

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ACCOUNTING FOR OVERHEADS

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  1. 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

  2. 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.

  3. 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

  4. 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

  5. Classification Of Overheads

  6. 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

  7. Allocation Of Overheads

  8. 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

  9. Basis Of Apportionment

  10. 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

  11. 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

  12. 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

  13. 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

  14. Computation Of Machine Hour Rate

  15. THANK YOU !!!

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