This document discusses overhead costs and their classification. It begins with an introduction of the presenter and group members. It then defines overheads as indirect costs that are not directly identifiable to a specific cost object. It provides examples of direct versus indirect costs. It also classifies overheads based on function (production, administration, selling, distribution) and behavior (variable, fixed, semi-variable). Finally, it outlines the process of allocating and apportioning overheads which involves collecting expenses, departmentalizing, and then allocating or apportioning the expenses among departments.

1. INSTITUTE OF TECHNOLOGY
& MANAGEMENT
MR. VIJAY BALU RASKAR
BATCH-SMBA-02
17-01-2011

2. MY GROUP MEMEBRS
Presents
• Ms Shruti Kannan = Introduction of
CR
• Ms Pramada Dhanawade = Factors
of CR
• Ms Kusum Rawat = Scope, Tool &
Technique of CR
• Mr Newymathews = Intoduction of
Material & Inventory valuation

3. Mr Vijay Raskar
Presenting on…..
•OVERHEAD

4. OVERHEAD
Overheads comprise of indirect
materials, indirect employee costs and
indirect expenses which are not
directly identifiable or allocable to a
cost object in an economically feasible
way.

5. COSTS
Direct Cost Indirect Cost
• It is part of project / firm. • Extra part of project/firm
• Capable of separating • Non-project related cost
project-related costs (direct (Not included in the project
cost) from non-project- cost)
related costs (indirect cost). • Vacation, sick, general
• Salary & Wages to workers office time, etc. (indirect
labor), along with benefits,
• Project taxes, heat, light, rent and
material, consultants etc other non-project-specific
• Related to project work. expenses

6. EXAMPLE of Costs
A unit manufactures two products-
Leather Shoes & Leather wallets.
Material used for both the products is
traceable to them individually but
expenditure of common machine is
not traceable.
Therefore, Material would be direct
cost and ‘Machine Expenses’ would
be indirect cost.

7. Classification based on function

8. Production Overheads:- All the cost
incurred for production of Goods are
known as production overheads.
Administration Overhead:- Indirect
expenses incurred for running the
administration are known as
Administration Overhead.

9. Selling overheads:- Overhead incurred
Getting order from customers is called
as selling overheads.
Distribution Overhead:- Overhead
incurred for execution of order is called
as distribution overhead.

10. Classification based on behavior

11. Variable overheads:- It comprise of
expenses which vary in proportion to
the change of volume of production.
For example, cost of utilities etc.
Fixed overheads:- It comprise of
expenses whose value do not change
with the change in volume of
production such as salaries, rent etc.

12. Semi-variable overheads:- They are
partly affected by change in the
production volume. They are further
segregated into variable overheads
and fixed overheads.

13. ALLOCATE AND APPORTIONMENT
we collect all overhead, and then
we classify it.

14. 1st Step : Collection of Different
Overhead Expenses
All overhead expenses cannot be
collected from one source.
1) Store:- Keeps all raw material and
use it as per requirements.
2) Wages analysis book:- All indirect
labor cost.
3) Invoices of other indirect
expenses:- Cash book and other
expenses.

15. 2nd Step : Departmentalization of
overhead
There may be repair department,
power department, tool department
and many more.

16. 3rd Step : Allocation and
Apportionment of overhead expenses
a) Allocation of overhead expenses
Expense for particular department
Like overtime salary.

17. b) Apportionment of overhead
expenses
Rent for plant for two different
departments.
Let A plant using 70% area then 70%
rent from total.
Let B plant using 30% area then 30%
rent from total.

18. RESULT:-
Cost reduction increases
productivity and reducing cost per
unit.
Material is the prime part of
the total cost of production of
manufacturing firm.
Overhead plays very important
role in accounting. They are charging
each unit of a product with an
equitable share of overhead expenses.

19. Thank
You