The procedure for accounting and control of overheads involves the some steps described as follow:
Most of the manufacturing process functionally are different and performed by different departments in a factory. Where such a division of functions has been made, some of the departments would be engaged in actual production of goods while others in providing services ancillary thereto.
The overhead cost chapter in a business or accounting context typically deals with expenses that are incurred in the operation of a business but cannot be directly attributed to specific products or services.
Hello Friends!
This is the best ppt on 'Production Cost Concepts'. I tried to include all the main topics that will also be helpful for university exams. All the topics has been explained up to the point along with the required formula.
I also tried to keep the ppt as simple as possible not including any complex language. Hope you will clear all your doubts and will also learn something new in the field of Manufacturing Technology.
Learn and Enjoy!
#Production #Productuctioncost #manufacturing #technology
Thank You!
01.Understand the concept of ‘Overheads’.
02.Understand classification, allocation, apportionment and absorption of overheads.
03. Understand the Primary and Secondary Distribution of Overheads.
04. Understand the Traditional & Activity Based Costing methods
05. Identify the value added & non value added activity
WHY IS THE ALLOCATION METHOD USED IN ACCOUNTING FOR THE DIFFERENCE BETWEEN AP...Mashfiq Albartross
To determine the cost of goods we have to determine the factory overhead. Cost of goods are included all the costs occurred during the production including direct and indirect material, labor and all the factory overhead costs. We use allocation method to determine the factory overhead costs. If we can’t determine the factory overhead costs we can’t find out the actual cost of the goods those are produced and the sale value we can’t determine correctly. Because cost of a good is consisted with factory overhead costs. Factory overhead expenses should be determined otherwise understated rate of a good can occur. Because if we can’t determine the factory overhead costs we can’t actually determine the cost of a good that is prepared for sale.
Allocation methods are used to determine factory overhead costs. Organizations use Applied or Actual factory overhead allocation methods to determine the Factory overhead costs. Cost of goods are lied with these factory overhead costs. So if we need to determine the amount in which we need to sale a good we need to determine it’s total manufacturing costs. Otherwise loss will occur.
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The procedure for accounting and control of overheads involves the some steps described as follow:
Most of the manufacturing process functionally are different and performed by different departments in a factory. Where such a division of functions has been made, some of the departments would be engaged in actual production of goods while others in providing services ancillary thereto.
The overhead cost chapter in a business or accounting context typically deals with expenses that are incurred in the operation of a business but cannot be directly attributed to specific products or services.
Hello Friends!
This is the best ppt on 'Production Cost Concepts'. I tried to include all the main topics that will also be helpful for university exams. All the topics has been explained up to the point along with the required formula.
I also tried to keep the ppt as simple as possible not including any complex language. Hope you will clear all your doubts and will also learn something new in the field of Manufacturing Technology.
Learn and Enjoy!
#Production #Productuctioncost #manufacturing #technology
Thank You!
01.Understand the concept of ‘Overheads’.
02.Understand classification, allocation, apportionment and absorption of overheads.
03. Understand the Primary and Secondary Distribution of Overheads.
04. Understand the Traditional & Activity Based Costing methods
05. Identify the value added & non value added activity
WHY IS THE ALLOCATION METHOD USED IN ACCOUNTING FOR THE DIFFERENCE BETWEEN AP...Mashfiq Albartross
To determine the cost of goods we have to determine the factory overhead. Cost of goods are included all the costs occurred during the production including direct and indirect material, labor and all the factory overhead costs. We use allocation method to determine the factory overhead costs. If we can’t determine the factory overhead costs we can’t find out the actual cost of the goods those are produced and the sale value we can’t determine correctly. Because cost of a good is consisted with factory overhead costs. Factory overhead expenses should be determined otherwise understated rate of a good can occur. Because if we can’t determine the factory overhead costs we can’t actually determine the cost of a good that is prepared for sale.
Allocation methods are used to determine factory overhead costs. Organizations use Applied or Actual factory overhead allocation methods to determine the Factory overhead costs. Cost of goods are lied with these factory overhead costs. So if we need to determine the amount in which we need to sale a good we need to determine it’s total manufacturing costs. Otherwise loss will occur.
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Accounting for Overhead ACCA F2 PRESENTATION.pptx
1. Accounting for Overheads
• explain the different treatment of direct and indirect expenses
• describe the procedures involved in determining production overhead absorption rates
• allocate and apportion production overheads to cost centres using an appropriate basis
• reapportion service cost centre costs to production cost centres (using the reciprocal method where service
cost centres work for each other)
• select, apply and discuss appropriate bases for absorption rates
• prepare journal and ledger entries for manufacturing overheads incurred and absorbed
• calculate and explain the under- and over-absorption of overheads.
2. Direct expenses are expenses that can be directly identified with a specific cost unit or cost centre.
• There are few examples of direct expenses but royalties paid to a designer or fees paid to a subcontractor
for a specific job could be classed as direct expenses.
• Direct expenses are part of the prime cost of a product.
Indirect expenses cannot be directly identified with a specific cost unit or cost centre.
• The cost of renting a factory is classified as an indirect cost as the rent could be covering the
manufacturing location of all products and also possibly other areas of the business such as the accounting
department, a non-production location. It is not possible to relate the rent to a single products or location.
• Indirect expenses are part of the overheads of a business.
Overheads = indirect materials + indirect labour + indirect expenses
Examples of production cost
centres include:
Examples of production service cost
centres include:
Assembly Maintenance
Machining Canteen
Finishing. Stores.
3. Absorption costing involves the following stages:
– allocation and apportionment of overheads to the different cost centres
– reapportionment of service (non-production) cost centre overheads to the production cost centres
– absorption of overheads into the products.
The first stage of the absorption costing process involves the allocation and apportionment of overheads.
• Allocation involves charging overheads directly to specific departments (production and service).
• Overheads must be apportioned between different production and service departments on a fair basis.
4.
5. Reapportionment of service cost centre costs to production cost centres
• Direct method – the cost of each service cost centre is re-apportioned to the production cost centres only.
• Step down method – used when one service department works or provides a service for other service
departments as well as the production departments.
• Reciprocal reapportionment (or the repeated distribution method) – used where service cost centres do
work for each other as well as provide a service for the production cost centres.
8. Reciprocal reapportionment
Canteen overheads are reapportioned on the basis of
number of employees that work in the departments it
services. Total employees that eat in the canteen
= 18 + 30 + 12 = 60
Reapportioned to Assembly department = 18/60 × $6,600 =
$1,980)
Assembly = 50% × $19,920 = $9,960
9.
10. Absorption of overheads
Overheads can also be absorbed into cost units using the following absorption bases:
– units produced
– machine-hour rate (when production is machine intensive)
– labour-hour rate (when production is labour intensive) – percentage of prime cost – percentage of direct
wages
11.
12. Under- and over-absorption of overheads
OAR=$80000/20000=$4
Overhead absorbed=$4*22000=$88000
Actual Overhead=$90000
Answer is under $2000
Actual Overhead > Overhead absorbed= under
Actual Overhead < Overhead absorbed= over
Overhead incurred (actual) 84,000
Overhead absorbed (45,000 * $2) 90,000
Over absorption of overhead 6,000
13. A business absorbs its fixed production overhead on the basis of direct labour hours. The budgeted direct
labour hours for week 24 were 4,200. During that week 4,050 direct labour hours were worked and the
production overhead incurred was $16,700. The overhead was under absorbed by $1,310. The budgeted fixed
overhead for the week (to the nearest $10) was _________
Actual overhead $16,700
Under-absorbed $(1,310)
Overhead absorbed $15,390
OAR=$15390/4050=$3.80 per hour
Budgeted fixed overhead = 4,200 × $3.80 = $15,960
A business absorbs its fixed overheads on the basis of machine hours worked. The following figures are
available for the month of June:
Budgeted fixed overhead $45,000
Budgeted machine hours 30,000
Actual fixed overhead $49,000
If there was an over-absorption of overhead of $3,500, how many machine hours were worked in the month?
OAR=$45000/30000=$1.5 per hour
Actual overhead $49,000
Over-absorbed overhead $3,500 $52500/$1.50=35000 hours
Absorbed overhead $52,500