2. OVERHEADS
• Overhead refers to the costs of running a business that are not
directly related to producing a good or service. These costs can
be fixed, such as rent, or variable, such as transport costs. They
can also be semi-variable, such as utilities.
3. EXAMPLES
• Rent for your business space.
• Utility bills.
• Insurance.
• Office Supplies.
• Travel.
• Advertising expenses.
• Administration cost.
4. APPORTIONMENT OF OVERHEADS
• Apportionment of overhead is distribution of overheads to
more than one cost centre on some equitable basis. When the
indirect costs are common to different cost centres, these are
to be apportioned to the cost centres on an equitable basis.
6. PRIMARY APPORTIONMENT
• Many overhead expenses are incurred for the common benefit
of several departments. Examples include the costs of fire
insurance, repairs and maintenance, and rent. To apportion
expenses at the primary apportionment stage, such items are
apportioned to benefiting departments.
7. SECONDARY APPORTIONMENT
• The secondary apportionment stage reapportions service
department overheads to the production departments. The
objective of this stage is to ensure that only the production
departments bear all overhead costs, which will eventually be
charged to products.
8. PRIMARY AND SECONDARY APPORTIONMENT
• The first step is termed as primary distribution and the second
step is termed as secondary distribution of overheads.
• The base ( denominator) is selected on the basis of type of the
cost centre and its contribution to the products or services, for
example, machine hours, labour hours, quantity produced etc.
9. ABSORPTION OF OVERHEADS
• Overhead absorption costing is a method of allocating indirect
costs, such as rent, utilities, and depreciation, to the products
or services you produce. It can help you determine the true
cost of your output, as well as the profitability and efficiency of
your operations.
