TOPIC NAME:- COLLECTION,CLASSIFICATION, ALLOCATION,CODIFICATION OF OVERHEAD
BRANCHES OF ACCOUNTINGBOOK-KEEPINGFINANCIAL ACCOUNTINGCOST ACCOUNTINGMANAGEMENT ACCOUNTING
COST ACCOUNTING COST ACCOUNTING IS THECLASSIFICATION,RECORDING, ANDAPPROPRIATE ALLOCATION OFEXPENDITURE FOR THE DETERMINATION OFTHE COSTS OF THE PRODUCT OR SERVICES
ELEMENT OF COST MATERIAL LABOUR EXPENSES COST COST DIRECT DIRECT INDIRECT INDIRECT DIRECT INDIRECTMATERIAL EXPENSES EXPENSES MATERIAL LABOUR LABOUR OVERHEAD
OVERHEAD OVERHEAD MAY BE DEFINED AS THE COSTOF INDIRECT MATERIALS , INDIRECT LABOUR ANDSUCH OTHER EXPENSES INCLUDING SERVICES WHICHCANNOT CONVENIENTLY BE CHARGED TO ASPECIFIC UNIT (I.E. INDIRECT EXPENSES). Objective of study of overhead costs 1)to link the overheads to output 2)to control overhead
PRODUCTION OVERHEADS Overheads means all indirect costs whichare part and parcel of the total cost of production.But there is a great difficulty to know the amountif indirect cost of which a final output should bear.Because there is no direct relationship betweenindirect cost(overhead) and the production.Therefor through different stages of distributionof oh these are finally charged(i.E.ABSORBED) tothe final output there are some stages todistribute the overhead
Stages of distribution1) COLLECTION2) CLASSIFICATION3) ALLOCATION4) APPORTIONMENT5) RE-APPORTIONMENT6) ABSORPTION OF OVERHEAD
COLLECTION OF OVERHEAD This Involves Collection And Accumulation Of DataRelating To Overheads Based On Past Information AndAdjusted For Known Current Trends And Projected IntoThe Future.Information Collected From 1) Invoices (INDIRECT 2) Stores Requisition MATERIAL) 3) purchase requisition 4) Wages Analysis Book (indirect Labour) 5) Journal Entries (indirect exp.)
Classification of overhead classification involves two processesfirstly the specification of definite groupsaccording to which the expenses should beclassified and secondly ,the placing of severaltypes of expenses into one or the other of thesegroups according to their common characteristics Overhead Are Classified According ToNature or Function . This Facilities Decision-making And Proper Budgeting.
CLASSIFIATION OF OVERHEAD BY BY BY BYFUNCTIONAL BEHAVIOURWISE ELEMENTWISE CONTROLLABILITY Factory Fixed Ind. Controllable exp. exp. material exp. Selling Variable exp. exp. Ind. Labour Uncontrolla -ble exp. Distribution Semi Ind. exp. variable expenses exp.
ALLOCATION OF COST Allocation Of Overhead Means, Whole ItemsOf Overheads Are Allocated To Production AndService Departments. Cost Allocation Is Defined AsThe Allotment Of Whole Items Of Cost To CostCenters Or Cost Unit e.g. indirect wages of production dept. ‘A’ is to be allocated to dept. ‘A’ only. Similarly, wages of service dept. ’S’ is to be allocated to dept. ‘S’ only.
Allocation of overhead should meetboth the following condition 1) the cost centers must have caused the overhead to be incurred 2) the exact amount incurred in a cost centers must be known.
ADVANTAGES OF ALLOCATION OR DEPARTMENTALISATION1) BETTER ESTIMATION OF EXPENSES2) BETTER CONTROL3) ASCERTAINMENT OF COST FOR EACH DEPARTMENT4) SUITABLE METHOD OF COSTING.
Allocation and apportionment these terms are quitsame like they charged expenses to cost centers butexact meaning of these term’s is different i.e.POINT OF ALLOCATION APPORTIONMENTDIFFERENTIATIONMEANING IDENTIFYING A COST ALLOTMENT OF CENTERS AND CHARGING PROPORTIONS OF IT’S EXPENSES IN FULL. COMMON COST TO VARIOUS COST CENTERS.NATURE OF EXPENSES SPECIFIC AND GENERAL AND COMMON IDENTIFIABLENUMBER OF COST ONE MANYCENTERSAMOUNT OF OVERHEAD CHARGED IN FULL CHARGED IN PRAPORTIONS
CODIFICATION OF OVERHEAD It Is Technique Of Intelligently Describing InNumbers/Letters Or A Combination Of Both, For TheLengthy Description Of Numerous Cost Accounting. OBJECTIVES 1) group items of similar nature that are amenable toapportionment of OH exp. On the same basis 2) to carry out an analysis of overhead exp. For controlPurposes 3) to reduce the task of maintaining a huge numbers ofaccount
Methods of codification of overheads 1)Serial Number System 2)Decimal System 3)Alphabetical System 4)Combination Of Alphabetical And Numerical System 5)Numerical Code