Overhead refers to indirect costs that cannot be traced to specific products or services. This document discusses the classification, accounting, apportionment, absorption, and reconciliation of overheads. It outlines various types of overheads, steps in overhead accounting, bases for apportionment, principles of apportionment, methods of reapportionment, absorption methods, and how under/over absorption of overheads is handled.
In this presentation i tried to brief, what is tax relief, types of tax reliefs, Innocent Spouse Relief Tax Program, Relief By Separation Of Liability and more about other popular Tax Program,
Batch costing is a method of costing used when producing multiple identical items in batches. It involves identifying the fixed and variable costs to produce a certain number of goods and dividing the total batch cost by the number of units produced to determine the unit cost. Industries that commonly use batch costing include medicine, footwear, electronics, clothing manufacturers, and engineering components. Some benefits of batch production include reduced per unit costs due to mass production and reduced setup costs. However, machine breakdowns that stop the entire production are a potential downside.
The document discusses key aspects of developing compensation plans, including identifying appropriate compensation policies, establishing internal pay equity, and understanding different approaches such as job-based versus skill-based compensation. It also outlines the components of compensation systems, types of compensation, total compensation packages, criteria for developing plans, and tools for setting compensation.
The document discusses various aspects of maintenance management including definitions, objectives, types of maintenance, reliability concepts, modern maintenance methods, and total productive maintenance pillars. It defines maintenance as work to keep equipment in proper working order and prevent failures. The main types of maintenance discussed are breakdown, preventive, and predictive maintenance. Modern maintenance methods include reliability centered maintenance, six sigma maintenance, and total productive maintenance.
Overhead refers to indirect costs that cannot be traced to a specific product or service. There are various types of overheads that must be classified. The major steps in overhead accounting are to collect overhead details, distribute overhead to cost centers, and reapportion service department costs to production departments. Common bases for apportioning overhead include direct allocation, direct labor hours, and direct wages. Methods of reapportionment include the direct redistribution and step methods. Absorbing overheads involves allocating overhead expenses to cost centers or cost units using absorption rates. Under or over absorption of overhead can occur depending on actual overhead costs versus absorbed costs.
In this presentation i tried to brief, what is tax relief, types of tax reliefs, Innocent Spouse Relief Tax Program, Relief By Separation Of Liability and more about other popular Tax Program,
Batch costing is a method of costing used when producing multiple identical items in batches. It involves identifying the fixed and variable costs to produce a certain number of goods and dividing the total batch cost by the number of units produced to determine the unit cost. Industries that commonly use batch costing include medicine, footwear, electronics, clothing manufacturers, and engineering components. Some benefits of batch production include reduced per unit costs due to mass production and reduced setup costs. However, machine breakdowns that stop the entire production are a potential downside.
The document discusses key aspects of developing compensation plans, including identifying appropriate compensation policies, establishing internal pay equity, and understanding different approaches such as job-based versus skill-based compensation. It also outlines the components of compensation systems, types of compensation, total compensation packages, criteria for developing plans, and tools for setting compensation.
The document discusses various aspects of maintenance management including definitions, objectives, types of maintenance, reliability concepts, modern maintenance methods, and total productive maintenance pillars. It defines maintenance as work to keep equipment in proper working order and prevent failures. The main types of maintenance discussed are breakdown, preventive, and predictive maintenance. Modern maintenance methods include reliability centered maintenance, six sigma maintenance, and total productive maintenance.
Overhead refers to indirect costs that cannot be traced to a specific product or service. There are various types of overheads that must be classified. The major steps in overhead accounting are to collect overhead details, distribute overhead to cost centers, and reapportion service department costs to production departments. Common bases for apportioning overhead include direct allocation, direct labor hours, and direct wages. Methods of reapportionment include the direct redistribution and step methods. Absorbing overheads involves allocating overhead expenses to cost centers or cost units using absorption rates. Under or over absorption of overhead can occur depending on actual overhead costs versus absorbed costs.
Overhead refers to indirect costs that cannot be directly traced to a specific product or service. These include indirect materials, indirect labor, and indirect expenses. Overheads are classified based on their function, elements, and behavior as fixed, variable, or semi-variable. Proper classification of overheads is important for effective cost control, decision making, determining selling prices, conducting cost-volume-profit analysis, budgeting, and overhead absorption.
This document summarizes different types of labor costs and methods for controlling them. It discusses direct and indirect labor, casual and out workers, leave and holiday pay, normal and abnormal idle time, and various incentive plans like Halsey, Rowan, and Taylor's differential piece rate systems. The key points are how labor can be classified, the importance of controlling labor costs, different types of workers and paid time off, causes of idle time, and incentive plans to encourage higher productivity.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms for those who already suffer from conditions like anxiety and depression.
This document discusses various wage payment methods and incentive plans used in organizations. It describes time-based wage systems that pay employees based on time worked, and piece-rate systems that pay based on output. It also discusses individual and group incentive plans that provide bonuses for efficient work. Some key incentive plans covered are Halsey, Merrick Multiple Piece Rate, and Gainn Task & Bonus plans. The document stresses that no single method is best and combinations can provide security and incentives for high performance.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive functioning. Exercise causes chemical changes in the brain that may help protect against developing mental illness and improve symptoms for those who already have a condition.
Understanding Income Tax - Profits & Gains of Business or Profession [Sec 35 ...DVSResearchFoundatio
The document discusses various sections of the Income Tax Act relating to deductions available for businesses and professions. Section 35 allows deductions for expenditure incurred on scientific research. Sections 35ABA and 35ABB allow amortization of capital expenditure incurred for acquiring spectrum rights or license to operate telecommunication services. Section 35AD provides a 100% deduction for capital expenditure incurred for specified businesses like developing affordable housing, setting up hospitals, operating cold storage facilities, if certain conditions are met. The sections outline eligible expenditures, calculation of deductions, treatment of assets on sale, and implications of non-compliance.
This document discusses different types of costing methods including job costing and contract costing. It provides details on:
- Job costing is used to determine costs for specific jobs or orders and is commonly used in job order industries. Costs are tracked separately for each job.
- Contract costing is a variant of job costing applied to construction projects. Each contract is treated as a separate cost unit and costs are tracked separately for each contract over its duration.
- Key aspects of contract costing include maintaining separate accounts for each contract, charging costs incurred directly to the relevant contract, and payment being made based on certified work completed.
Cost accounting measures and reports on the costs of acquiring and using resources. It provides information for management and financial accounting to aid in planning and control decisions. Standard costing involves setting cost standards for materials, labor, and overhead and comparing actual costs to the standards to analyze variances and maintain efficiency. Standards can be either ideal, allowing for no inefficiencies, or practical, allowing for normal production inefficiencies. The standard costing process involves gathering information to set standards and then comparing actual performance to the standards to prepare performance reports.
The Dearness Allowance is a cost of living adjustment allowance paid to government employees, public sector employees, and pensioners in India to mitigate the impact of inflation. It is calculated as a percentage of the basic salary or pension that increases along with rises in the consumer price index. The Dearness Allowance was introduced after World War 2 and has been revised over time by various pay commissions to account for inflation and be paid out twice yearly.
The document provides an overview of the Factories Act of 1948 in India. Some key points:
[1] The Factories Act was passed in 1948 to regulate working conditions and safety in factories. It has been amended several times since to add more protections for workers.
[2] The Act covers health, safety, welfare, working hours and other conditions for workers. It aims to protect workers' safety, health and welfare.
[3] Key responsibilities include those of the occupier/manager to implement the Act's provisions, and inspectors to ensure compliance. Various chapters cover issues like hazardous processes, welfare provisions, and rules for different groups like women and child workers.
Md Asif was employed as a Consultant at Flipkart Internet Private Limited from April 28, 2014 to August 2, 2015 according to an experience letter. The letter certified his employment and wished him the best in future endeavors.
This document discusses overhead costs and their accounting treatment. It defines overheads as indirect costs that cannot be directly attributed to a specific cost object. The document outlines the key steps in overhead accounting: classification of overheads, codification and collection, allocation and apportionment to cost centers, and absorption into product costs. It provides examples of different bases for classifying, allocating, and apportioning overheads. The document also discusses reapportioning service department costs to production departments through various secondary distribution methods like repeated distribution and trial and error.
A presentation on job planning job manuals,SreeKrishna1
This document discusses reliability and maintenance engineering, specifically job planning. It covers the steps of job planning including investigating the site, identifying and documenting the work, developing a repair plan, and estimating required time. Job manuals are created for major maintenance jobs and include the necessary methodologies, tools, materials, and facilities. Short term planning involves tasks like lubrication and small repairs over hours to months. Long term planning encompasses major repairs, overhauls, renovations, and modernization projects spanning months to years. Effective planning and scheduling can reduce costs, improve workforce utilization, and ensure quality maintenance work.
GST is an indirect tax levied on the supply of goods and services in India. It replaced multiple existing indirect taxes levied by the central and state governments. GST aims to integrate state economies and boost tax revenues. It introduces input tax credit which eliminates cascading of taxes and benefits both businesses and consumers. While GST faced initial challenges during implementation, it has since boosted tax collection and helped build a more transparent, less corrupt tax system in India. Overall, GST has proven to be a boon for the Indian economy by increasing tax revenues and facilitating the ease of doing business across state borders.
This document defines and explains break even analysis. It lists the group members and contents. Break even analysis determines the level of output needed for total revenue to equal total costs. It discusses calculating break even points using fixed and variable costs. The purpose is to provide a rough earnings indicator. Limitations include not accounting for demand changes. Calculators are available to assist with break even calculations.
The document discusses cost audit, which involves verifying cost accounts and ensuring adherence to cost accounting objectives and plans. It provides definitions of cost audit from professional bodies and outlines objectives like checking accounts, adherence to plans, and efficiency. Key aspects reviewed in a cost audit include materials, labor, overhead charges, depreciation, and work-in-progress. The document also compares cost audit to financial audit.
The document discusses cost allocation and overhead accounting. It defines overhead as indirect costs that cannot be traced to a specific product or service. It covers classifying and types of overheads, the steps in overhead accounting including collection, distribution, and reapportionment. The bases and principles of apportioning overheads are explained along with common reapportionment methods. Absorption of overheads refers to allocating overhead expenses to cost units or centers. Various absorption methods and the concepts of under and over absorption are defined.
The document defines overheads as the total indirect costs that cannot be directly associated with a specific product, including indirect materials, labor, and expenses. It discusses the classification of overheads by function, behavior, and element. The key steps in overhead accounting are collecting overhead details, distributing overhead to cost centers, and reapportioning service department costs. Overheads can be apportioned to departments or cost centers using various bases such as direct allocation, direct labor hours, direct wages, or number of workers. Methods of absorbing overheads include rate per unit of production, direct wages, production hours, machine hours, direct material cost, prime cost, and sales price methods.
Overhead refers to indirect costs that cannot be directly traced to a specific product or service. These include indirect materials, indirect labor, and indirect expenses. Overheads are classified based on their function, elements, and behavior as fixed, variable, or semi-variable. Proper classification of overheads is important for effective cost control, decision making, determining selling prices, conducting cost-volume-profit analysis, budgeting, and overhead absorption.
This document summarizes different types of labor costs and methods for controlling them. It discusses direct and indirect labor, casual and out workers, leave and holiday pay, normal and abnormal idle time, and various incentive plans like Halsey, Rowan, and Taylor's differential piece rate systems. The key points are how labor can be classified, the importance of controlling labor costs, different types of workers and paid time off, causes of idle time, and incentive plans to encourage higher productivity.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms for those who already suffer from conditions like anxiety and depression.
This document discusses various wage payment methods and incentive plans used in organizations. It describes time-based wage systems that pay employees based on time worked, and piece-rate systems that pay based on output. It also discusses individual and group incentive plans that provide bonuses for efficient work. Some key incentive plans covered are Halsey, Merrick Multiple Piece Rate, and Gainn Task & Bonus plans. The document stresses that no single method is best and combinations can provide security and incentives for high performance.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive functioning. Exercise causes chemical changes in the brain that may help protect against developing mental illness and improve symptoms for those who already have a condition.
Understanding Income Tax - Profits & Gains of Business or Profession [Sec 35 ...DVSResearchFoundatio
The document discusses various sections of the Income Tax Act relating to deductions available for businesses and professions. Section 35 allows deductions for expenditure incurred on scientific research. Sections 35ABA and 35ABB allow amortization of capital expenditure incurred for acquiring spectrum rights or license to operate telecommunication services. Section 35AD provides a 100% deduction for capital expenditure incurred for specified businesses like developing affordable housing, setting up hospitals, operating cold storage facilities, if certain conditions are met. The sections outline eligible expenditures, calculation of deductions, treatment of assets on sale, and implications of non-compliance.
This document discusses different types of costing methods including job costing and contract costing. It provides details on:
- Job costing is used to determine costs for specific jobs or orders and is commonly used in job order industries. Costs are tracked separately for each job.
- Contract costing is a variant of job costing applied to construction projects. Each contract is treated as a separate cost unit and costs are tracked separately for each contract over its duration.
- Key aspects of contract costing include maintaining separate accounts for each contract, charging costs incurred directly to the relevant contract, and payment being made based on certified work completed.
Cost accounting measures and reports on the costs of acquiring and using resources. It provides information for management and financial accounting to aid in planning and control decisions. Standard costing involves setting cost standards for materials, labor, and overhead and comparing actual costs to the standards to analyze variances and maintain efficiency. Standards can be either ideal, allowing for no inefficiencies, or practical, allowing for normal production inefficiencies. The standard costing process involves gathering information to set standards and then comparing actual performance to the standards to prepare performance reports.
The Dearness Allowance is a cost of living adjustment allowance paid to government employees, public sector employees, and pensioners in India to mitigate the impact of inflation. It is calculated as a percentage of the basic salary or pension that increases along with rises in the consumer price index. The Dearness Allowance was introduced after World War 2 and has been revised over time by various pay commissions to account for inflation and be paid out twice yearly.
The document provides an overview of the Factories Act of 1948 in India. Some key points:
[1] The Factories Act was passed in 1948 to regulate working conditions and safety in factories. It has been amended several times since to add more protections for workers.
[2] The Act covers health, safety, welfare, working hours and other conditions for workers. It aims to protect workers' safety, health and welfare.
[3] Key responsibilities include those of the occupier/manager to implement the Act's provisions, and inspectors to ensure compliance. Various chapters cover issues like hazardous processes, welfare provisions, and rules for different groups like women and child workers.
Md Asif was employed as a Consultant at Flipkart Internet Private Limited from April 28, 2014 to August 2, 2015 according to an experience letter. The letter certified his employment and wished him the best in future endeavors.
This document discusses overhead costs and their accounting treatment. It defines overheads as indirect costs that cannot be directly attributed to a specific cost object. The document outlines the key steps in overhead accounting: classification of overheads, codification and collection, allocation and apportionment to cost centers, and absorption into product costs. It provides examples of different bases for classifying, allocating, and apportioning overheads. The document also discusses reapportioning service department costs to production departments through various secondary distribution methods like repeated distribution and trial and error.
A presentation on job planning job manuals,SreeKrishna1
This document discusses reliability and maintenance engineering, specifically job planning. It covers the steps of job planning including investigating the site, identifying and documenting the work, developing a repair plan, and estimating required time. Job manuals are created for major maintenance jobs and include the necessary methodologies, tools, materials, and facilities. Short term planning involves tasks like lubrication and small repairs over hours to months. Long term planning encompasses major repairs, overhauls, renovations, and modernization projects spanning months to years. Effective planning and scheduling can reduce costs, improve workforce utilization, and ensure quality maintenance work.
GST is an indirect tax levied on the supply of goods and services in India. It replaced multiple existing indirect taxes levied by the central and state governments. GST aims to integrate state economies and boost tax revenues. It introduces input tax credit which eliminates cascading of taxes and benefits both businesses and consumers. While GST faced initial challenges during implementation, it has since boosted tax collection and helped build a more transparent, less corrupt tax system in India. Overall, GST has proven to be a boon for the Indian economy by increasing tax revenues and facilitating the ease of doing business across state borders.
This document defines and explains break even analysis. It lists the group members and contents. Break even analysis determines the level of output needed for total revenue to equal total costs. It discusses calculating break even points using fixed and variable costs. The purpose is to provide a rough earnings indicator. Limitations include not accounting for demand changes. Calculators are available to assist with break even calculations.
The document discusses cost audit, which involves verifying cost accounts and ensuring adherence to cost accounting objectives and plans. It provides definitions of cost audit from professional bodies and outlines objectives like checking accounts, adherence to plans, and efficiency. Key aspects reviewed in a cost audit include materials, labor, overhead charges, depreciation, and work-in-progress. The document also compares cost audit to financial audit.
The document discusses cost allocation and overhead accounting. It defines overhead as indirect costs that cannot be traced to a specific product or service. It covers classifying and types of overheads, the steps in overhead accounting including collection, distribution, and reapportionment. The bases and principles of apportioning overheads are explained along with common reapportionment methods. Absorption of overheads refers to allocating overhead expenses to cost units or centers. Various absorption methods and the concepts of under and over absorption are defined.
The document defines overheads as the total indirect costs that cannot be directly associated with a specific product, including indirect materials, labor, and expenses. It discusses the classification of overheads by function, behavior, and element. The key steps in overhead accounting are collecting overhead details, distributing overhead to cost centers, and reapportioning service department costs. Overheads can be apportioned to departments or cost centers using various bases such as direct allocation, direct labor hours, direct wages, or number of workers. Methods of absorbing overheads include rate per unit of production, direct wages, production hours, machine hours, direct material cost, prime cost, and sales price methods.
Overhead rates are used to absorb overhead costs based on a quantity or value base like direct labor hours. There are different types of overhead rates like actual, predetermined, blanket, and multiple rates. Predetermined rates are set in advance based on budgets to facilitate cost estimation. Under or over absorption of overheads can occur if actual overhead costs differ from budgeted amounts due to estimation errors. The under or over absorbed amounts are disposed of through supplementary rates, writing off to a costing profit and loss account, or carrying amounts to the next period.
What is job costing? What are its main characteristics?
Characteristics
Features
procedure involve in job order costing.
Applicability
What is BEP? List out the assumption of breakeven analysis
Assumption of BEP analysis
What is Profit Volume (P/V) Ratio
What is CVP analysis? How does it help the management?
What is process costing? What are its main characteristics? Name the industries where process costing can be applied.
Normal Loss
Abnormal Loss
Abnormal Gain
Job Costing & Process Costing
Accounting for losses in process costing
What do you mean by operating costing? Draw a specimen cost sheet for transport costing.
INDUSTRY AND CORRESPONDING COST UNIT
RECONCILIATION STATEMENT
MHR refers to the overhead cost of running a machine for one hour. It is calculated by dividing fixed overheads by machine hours to get the fixed overhead rate, and calculating individual variable overhead rates. The total of fixed and variable rates gives the final MHR. Predetermined overhead rates are estimated in advance for costing, while actual rates are computed after the period. Under or over absorption of overheads can occur with predetermined rates and is treated by a supplementary rate, costing P&L, or carryover to next year.
- Standard costing is a cost accounting method where expected or planned costs (called standard costs) are assigned to products rather than actual costs, and variances between standard and actual costs are tracked to monitor performance and identify issues. Standard costs and variance analysis provide valuable information to management about whether actual costs differ from plans and whether profits will be higher or lower than expected. Standard costing works best for companies with mass production of homogeneous goods and repetitive processes where standard costs can be reliably estimated based on past averages.
Job-order costing is used for unique products or services built to customer specifications. Costs are accumulated by individual job on a job order cost sheet. This allows the profitability of each job to be determined. Important documents include material requisitions, job order cost sheets, and employee timecards. Manufacturing overhead includes indirect costs like depreciation, utilities, and supervision. Overhead is allocated to jobs using a predetermined overhead rate based on an allocation base like direct labor hours.
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
Project cost management involves planning, estimating, budgeting, and controlling costs to complete a project within its approved budget. It includes estimating the costs of individual project activities, determining an overall budget by aggregating the activity costs, and monitoring costs during project execution to identify and address variances from the budgeted costs. Earned value management techniques compare the planned value, actual costs, and earned value of completed work to measure project performance and forecast the estimated total costs. Proper cost management is important for project success and staying within budget.
Group 11 presented information on cost accounting. The objectives of cost accounting are to advise management on cost-efficient actions, help with operations direction and control, and provide immediate information on inventory. Costs are classified as direct, indirect, variable, fixed, semi-variable, or chunky based on their behavior when activity changes. Direct costs are specifically related to a product while indirect costs are not directly tied to a product. Cost centers and cost drivers are used to assign indirect costs in a two-stage process. Designing an effective cost accounting system requires determining the appropriate number of cost centers and how to assign costs to products.
Chapter 09 of ICT Project Management based on IOE Engineering syllabus. This chapter mainly focuses on cost and project, cost management, cost estimating and more related to cost and project. Provided by Project Management Sir of KU
This document provides an introduction to cost classifications. It defines cost and discusses different ways to classify costs, including by nature, function, traceability, controllability, and normality. Direct and indirect costs are distinguished by whether they can be traced to a specific product. Costs are also classified as variable or fixed. Marginal costing separates variable and fixed costs, treating fixed costs as period costs rather than product costs. Cost-volume-profit analysis examines the relationship between sales, costs, volume, and profit. Its objective is to predict profit impacts of changes in sales volume.
Standard costing involves establishing predetermined estimates of the costs of products or services, collecting actual costs, and comparing actual costs to the estimates. Standards are set for materials, labor, overhead, and selling prices/margins based on historical data, task analysis, and production process analysis. Material and labor standards consider factors like supplier prices, wage rates, and efficiency levels. Overhead standards may be based on a rate per labor hour. Comparing actuals to standards highlights variances that need management attention to control costs.
- Process costing is used when products are mass produced and costs cannot be determined for individual units. Costs are accumulated over time periods and allocated to all units produced.
- There are three main types of process costing: weighted average, standard costs, and first-in first-out (FIFO). Weighted average is the simplest to calculate while FIFO is most complex.
- In process costing, direct materials are added at the beginning of the production process while direct labor and overhead are gradually added over the course of production as the materials move through different processing departments.
This document discusses process costing. It defines process costing as a branch of operation costing that determines the cost of a product at each stage of production. Process costing is used for mass production of standardized products that pass through multiple processes to become finished goods. Costs are accumulated over time periods and allocated to all units produced during that period on a consistent basis. The document provides examples of when process costing versus job costing would be used and includes diagrams of a process cost flow chart and process account format.
The presentation covers the basics of Cost Accounting.
It gives a birds eye view of the subject of Cost Accounting.
The advantages, limitations, need, scope, classification are covered.
activity_based_costing power point presentationChamodiBandara1
Activity-based costing (ABC) is a costing method that assigns overhead and indirect costs to related products and services. This accounting method of costing recognizes the relationship between costs, overhead activities, and manufactured products, assigning indirect costs to products less arbitrarily than traditional costing methods. However, some indirect costs, such as management and office staff salaries, are difficult to assign to a product.
Activity-based costing (ABC) is mostly used in the manufacturing industry since it enhances the reliability of cost data, hence producing nearly true costs and better classifying the costs incurred by the company during its production process.
KEY TAKEAWAYS
Activity-based costing (ABC) is a method of assigning overhead and indirect costs—such as salaries and utilities—to products and services.
The ABC system of cost accounting is based on activities, which are considered any event, unit of work, or task with a specific goal.
An activity is a cost driver, such as purchase orders or machine setups.
The cost driver rate, which is the cost pool total divided by cost driver, is used to calculate the amount of overhead and indirect costs related to a particular activity.
ABC is used to get a better grasp on costs, allowing companies to form a more appropriate pricing strategy.
This costing system is used in target costing, product costing, product line profitability analysis, customer profitability analysis, and service pricing. Activity-based costing is used to get a better grasp on costs, allowing companies to form a more appropriate pricing strategy.
The formula for activity-based costing is the cost pool total divided by cost driver, which yields the cost driver rate. The cost driver rate is used in activity-based costing to calculate the amount of overhead and indirect costs related to a particular activity.
The ABC calculation is as follows:
Identify all the activities required to create the product.
Divide the activities into cost pools, which includes all the individual costs related to an activity—such as manufacturing. Calculate the total overhead of each cost pool.
Assign each cost pool activity cost drivers, such as hours or units.
Calculate the cost driver rate by dividing the total overhead in each cost pool by the total cost drivers.
Divide the total overhead of each cost pool by the total cost drivers to get the cost driver rate.
Multiply the cost driver rate by the number of cost drivers.
As an activity-based costing example, consider Company ABC that has a $50,000 per year electricity bill. The number of labor hours has a direct impact on the electric bill. For the year, there were 2,500 labor hours worked, which in this example is the cost driver. Calculating the cost driver rate is done by dividing the $50,000 a year electric bill by the 2,500 hours, yielding a cost driver rate of $20. For Product XYZ, the company uses electricity for 10 hours.
This document discusses different accounting methods including principles of accounting, traditional accounting, and activity-based costing. It provides details on 10 key principles of accounting according to GAAP. Traditional accounting allocates overhead costs based on units produced, labor hours, or machine hours. Activity-based costing assigns overhead and indirect costs to products based on the activities required to produce them and their cost drivers. It provides a more accurate reflection of product costs than traditional accounting.
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.
Standard costs are predetermined estimates of the costs of direct materials, direct labor, and manufacturing overhead expected to be used to produce a unit of product or service. They are used for planning, measuring performance, and simplifying the accounting system. Setting standards involves determining practical and attainable levels based on experience, not ideal levels that are unattainable. A standard cost card summarizes the standard costs for materials, labor, and overhead to produce one unit of a product. While standards and budgets both involve planning costs, standards refer to estimated per unit costs, whereas budgets refer to total planned costs.
Similar to Cost allocation powerpoint presentation (20)
1. Cost Allocation
What is overhead?
Basis of classifying overheads
Various types of overheads
Steps in overhead accounting
Basis of Apportionment of Overheads
Principles of Apportionment
Methods of Reapportionment
Absorption of overheads
Methods of absorption
Under absorption
Over absorption
2. Definition of Overheads
The CIMA defines overhead cost as “the
total cost of indirect materials, indirect
labor and indirect expenses. In short, it is
the cost of materials, labor and expenses
that cannot be economically identified with
specific saleable cost unit.
5. Steps on Overhead Accounting
The various steps in an overhead
accounting are:
Collection of overhead details
Distribution of overhead to cost centers
Reapportionment of service department
costs to production departments
6. Primary Distribution of Overheads and
Reapportionment of Overheads
Refer to the Word file Attached
7. Basis of apportionment of
overheads
Direct Allocation
Direct Labor Hours
Direct Wages
Number of workers
8. Methods of Reapportionment
Direct Redistribution
• Chances of overcharge or under charge
• Non accuracy in department overhead rates
Step Method
• Apportioning service department costs
Reciprocal Service Method
• Simultaneous equation method
• Repeated distribution method
• Trial and error method
10. Absorption of Overheads
“Process of allocating the overhead
expenses to the cost centers/cost units is
known as overhead absorption”
11. Absorption rates
Actual rate
Predetermined rate
Moving average rate
Blanket and multiple rates
12.
13. Rate per unit of production
OH rate = Budgeted overhead expenses
Budgeted production
Features:
• Simple /easy to use
• Suitable for extractive industries
14. Direct Wages Method
OH rate = Budgeted overhead expenses
Direct wages
Advantages:
• Consideration of time factor
• Stability of labor rates
• Proportional charge to production
• Easy availability of data
• Most appropriate in certain situations
Limitations:
• Not related to efficiency of workers
• Consideration of time factor (piece rate basis)
• Ignores contribution by other factors of production
• No distinction between fixed and variable expenses
15. Production hour method
OH rate = Budgeted overhead expenses
Total productive hours of direct labor
Advantages:
• When job is labor-oriented
• Uniform time for various jobs
• No impact on rate by the method of wage
payment/grade/rate of workers
Limitations:
• Faulty distribution of overhead
• Not suitable where piece rate system is used
• Expenses not related to labor hours are ignored
• No clear distinction between types of labor/costs/workers
16. Machine hour rate method
OH rate = Total running expenses
Number of working hours for the machine
Advantages:
• Scientific/practical/accurate
• Comparison of relative efficiencies
• Decision making by the management
• Detection of idle time
Limitations:
• Higher cost
• Not useful when blanket rate is used
• Inaccurate results if use of labor is equally important
• Doesn’t consider expenses that are not proportionate to working
hours
17. Direct material cost method
OH rate = Budgeted overhead expense
Expected direct material cost
Advantages:
• Simple /easy to use
• Suitable when
Output is uniform
Stable material cost
Proportion of OH to total cost is significant
Limitations:
• Unstable and inaccurate
• No consideration for time factor
• No distinction between fixed and variable costs
• No distinction between production of workers and machines
18. Prime cost method
OH rate = Budgeted overhead expense
Prime cost
Advantages:
Simple /easy to use
Suitable when there is no wide fluctuations in
processing
Limitations:
No consideration for time factor
No distinction between fixed and variable costs
19. Sale price method
OH rate = Budgeted overhead expenses
Sale price of units of production
Suitable for the absorption of :
• Administration
• Selling and distribution
• Research and development
• Design costs
20. Factors to be considered for determining
the basis of apportionment
Adequacy: The OH rate should be in such a way that
equitable apportionment can be made to the cost centers
or cost units.
Convenience: The OH rate should be simple and easy
to understand and also convenient in application.
Time factor: The OH rate should have some relation to
the time taken by various jobs for completion.
Manual or machine work: There can be different OH
rates for manual and machine work.
Differential OH rates: If the nature of work done by the
various departments is not same, different OH rates can
be ascertained.
Information: The availability of information affects the
selection of the OH rates.
21. Under absorption/Over absorption
The OH costs are fully recovered from
production, if actual rate method of
absorption is adopted. If the OH rate
absorbed is less than the overheads
incurred, it is called as under absorption of
overheads.
If the OH rate absorbed is more than the
actual overheads incurred, it is known as
over absorption of overheads.
22. Accounting of Under absorption
and Over absorption
Use of supplementary rates
To carry out adjustment for the difference between
overhead absorbed and overhead incurred
Under or over absorbed overheads/actual base
Writing off to costing P/L account
Under/Over absorption due to abnormal situations
Distortion in the value of stock
Absorption in the accounts of subsequent years
Deferred charge
Suitable when the business period is more than one
year
23. Summary
How we can define overhead?
Classification and types of overheads
Major steps involved in overhead accounting
What are the basis for apportioning the
overheads?
What are the principles of apportionment?
Trace the common methods of reapportionment.
What do you mean by absorption of overheads?
Methods of absorption
Under absorption and over absorption.
Editor's Notes
Allocating costs to different projects or services is necessary for the as Allocating certainment of the actual cost involved in each project or service. The costs that are assigned to cost objects can be divided into direct costs and indirect costs. Direct costs can be accurately traced to cost objects because they can be specifically and exclusively traced to a particular cost object whereas indirect costs cannot. Where a cost can be directly assigned to a cost object, it is known as cost tracing. Indirect costs cannot be traced directly to a cost object because they are usually common to several cost objects. Hence, the concept of cost allocation comes into picture. Cost allocation is the process of assigning costs in a situation wherein a direct measure does not exist for the quantity of resources consumed by a particular cost object. Cost allocations involve the use of surrogate rather than direct measures. The basis that is used to allocate costs to cost objects is called an allocation base or cost driver. Cost is defined as the amount of expenditure, actual or notional, incurred on or attributable to a given item. Cost represents the resources that have been or must be sacrificed to attain a particular objective. Direct costs are those costs that can be specifically and exclusively identified with a particular cost object. Indirect costs cannot be identified specifically and exclusively with a given cost object. Direct costs can be accurately traced because they can be physically identified with a particular object whereas indirect costs cannot. Prime cost refers to the direct costs of the product and consists of direct labor costs plus direct materials and direct expenses. Overheads are the indirect costs that cannot be allocated to any specific job or process as they are not capable of being identified with any specific job or process. It includes cost of indirect material, indirect labor and indirect expenses that cannot be conveniently charged to any job or process. The CIMA defines overhead cost as “the total cost of indirect materials, indirect labor and indirect expenses. In short, it is the cost of materials, labor and expenses that cannot be economically identified with specific saleable cost unit.
Manufacturing OH includes all the indirect expenses incurred by the operations of the manufacturing divisions of a concern. Expenses like depreciation, insurance charges on fixed assets etc. are considered as manufacturing overheads. Administration OH refers to all the expenses incurred towards the control and administration of an undertaking. Examples include office rent, salaries and wages of employees, showroom expenses etc. Selling and distribution OH refers to the costs incurred towards marketing, distribution and sales. Examples include all selling expenses, office expenses, salesman salaries, advertisement charges etc. Research expenses refer to the costs incurred for researching on new and improved products, new application of materials or improved methods. Development costs refer to the costs incurred towards commercial application of the discoveries made. Fixed overhead refers to those costs that will not vary with output but remain constant. Rent, rates, insurance, salaries etc. are fixed in nature irrespective of the level of capacity utilized or units produced. Variable OH costs are those that vary in direct proportion to the volume of output. Examples are power consumption, consumption of indirect materials and indirect labor etc. Semi-variable overheads are neither perfectly variable nor absolutely fixed in relation to the changes in volume. They change in the same direction as volume but not in direct proportion thereto. For example, in telephone charges, fixed cost is the rental element, variable cost is charges for calls made.
The costs incurred in materials used to further the manufacturing process, that is necessarily built into the product are called indirect materials. For example, cutting oil used in cutting surface, threads and buttons used in stitching clothes etc, are considered as indirect materials. Indirect labor consists of all salaries and wages paid to the staff for the purpose of carrying tasks incidental to goods or services, which will not form part of salaries and wages paid while working directly upon the product. Indirect expenses are those that are incurred by the organization while carrying out their total business activities and cannot be conveniently allocated to job, process, cost unit or cost centre.
The collection of overhead details is carried out using different documents. The documents that are used for the collection, allocation and apportionment of OH are standing order numbers, departmental distribution summary, journal, invoice and payroll.
The second step is the primary distribution of OH, i.e. the allocation and apportionment of expenses to cost centers. The allotment of whole item of cost, to cost centers or cost units is called cost allocation. Certain costs cannot be traced to particular cost units or cost centers. The proportionate allotment of costs over two or more cost centers or units is called cost apportionment. Cost allocation can be done directly, but cost apportionment needs a suitable basis for subdivision of costs. The third step is the reapportionment of service department costs to production departments. The reapportionment of service department costs to the production departments or cost centers is known as secondary distribution. The methods of redistribution of service department costs to production departments are direct redistribution method, step method and reciprocal service method. Under the direct redistribution method, the costs of service departments are directly apportioned to production departments without taking into account any service rendered by one service department to another service department. Thus, proper apportionment cannot be made and the production department may either be overcharged or under charged. As budgeted OH for each department cannot be prepared thoroughly, the department OH rates cannot be ascertained correctly. As per the step method, the cost of most serviceable departments is first apportioned to other service departments and production departments. The next service department is taken up and its cost is apportioned. This process goes on till the cost of the last service department is apportioned. Thus, the cost of the last service department is apportioned only to the production departments. The reciprocal service method considers the fact that every department should be charged for the services rendered to it. If two service departments provide service to each other, each department should be charged for the cost of service rendered by the other. The methods used under this approach can be classified as Simultaneous equation method Repeated distribution method; and Trial and error method When the simultaneous equation method is used, the equations are initially established. The steps include (a) the ascertainment of the true cost of service departments with the help of simultaneous equation; and (b) the redistribution to production departments on the basis of given percentage. When the repeated distribution method is used, the service department costs are repeatedly allocated in the specified percentages until the figures become too small to be significant. Under the trial and error method, the cost of one service department is apportioned to another center. The cost of another center plus the share received from the first center is again apportioned to the first cost center and this process is repeated till the balancing figure becomes negligible.
Under direct allocation, OH is directly allocated to various departments on the basis of expenses for each department respectively. Overtime premium of workers engaged in a particular department, jobbing repairs etc. are examples of direct allocation Under the direct labor hour basis, the OH expenses are distributed to various departments in the ratio of total number of labor hours worked in each department. Salaries of people like supervisors are apportioned on this basis On the basis of direct wages, expenses are distributed amongst various departments in the ratio of direct wage bills of the various department The total number of workers working in each department is taken as the basis for apportioning OH expenses among departments. Relative Areas of Departments Capital Values Light Points Kilowatt Hours Technical Estimates The area occupied by different departments forms the basis for the apportionment of certain expenses. Examples include lighting, rent, rates etc. Capital values are used as the basis of apportioning expenses like depreciation, insurance charges of the building etc. Light points are considered as the basis for apportioning lighting expenses. Kilowatt hours can be considered as the basis for apportioning the expenses incurred for power. Technical estimates is used as a basis for the apportionment of those expenses for which it is difficult to find out any other basis of apportionment.
The basic assumption of this method is that when one service department’s costs are apportioned, that particular department is then eliminated from any apportionment of the other service departments. This method ignores the concept of reciprocal services. Thus, this method ignores the complexity of situations in which two or more service departments simultaneously provide services to each other, as well as to production departments.
Cost allocation and cost absorption is the portioning of a cost among a set of cost objectives. For this purpose, the cost object could be production units, machines, groups of machines, individual products or groups of products. Companies that price all or a large part of their output on a cost-plus basis certainly need to include overheads in their cost of production. The absorption of overheads is also known as levy or recovery of overheads. The absorption process involves the distribution of overhead relating to a particular department among the units produced in that department during the relevant time period.
Actual rate The actual rate is computed by dividing the actual OH expenses incurred during a period of time by the actual quantum (quantity of value) of the base selected for that period. Predetermined rate In practice, actual OH costs are not always readily available for application since the total figure of OH cost incurred during the period will be ascertained only at the end of the accounting period and application of actual OH absorption is not possible. To overcome the difficulty, a predetermined OH absorption rate is calculated at the beginning of the accounting period and is applied to the completed units during the period. The major objective of using predetermined absorption rates is to recover the OH as soon as the product has been completed, to arrive at the product cost. It is calculated with the budgeted figures of the forthcoming accounting period based on the expected level of activity. Moving average rates These rates are a compromise between the actual rate and predetermined rate. It is computed by dividing the average of the past twelve months or six months actual OH cost by the estimated base for the months. Blanket and multiple rates A common absorption rate used throughout a factory and for all jobs and units of output irrespective of the department in which they were produced is called blanket absorption arte. Such rate is not appropriate where there are number of departments in the factory and jobs do not spend an equal amount of time in each department. In some cases, all the jobs or units may not pass through all the departments, in the factory. In such circumstances departmental OH rate of respective departments is applied to the jobs or units depending on time spent in each department, to ensure that all jobs are charged with their fair share.
Under the rate per unit of production method, the OH rate is calculated by dividing the budgeted OH expense by the budgeted production. This method is simple and suitable for extractive industries. The OH rate for a particular job is determined as a percentage of direct wages under the direct wages method. The percentage is arrived at by dividing the OH expenses by direct wages and multiplying the result by hundred. Under the production hour method, the OH rate is calculated by dividing the OH expenses by the total productive hours of direct labor. Machine hour rate is suitable when the job is performed predominantly by machines. The machine hour rate is calculated by dividing the total running expenses of a machine during a particular period by the number of hours the machine is estimated to work during the period. The percentage of factory expenses to the value of direct material consumed in production is calculated to absorb the manufacturing overheads under the direct material cost method. The method can be used where output is uniform, where the prices of the materials are stable, where the proportion of OH to the total cost is significant. The rate under prime cost method is calculated by dividing the budgeted OH expenses by the prime cost incurred by cost center. The OH rate under sale price method is calculated by dividing the budgeted OH expenses by the sale price of units of production.
The OH rate is calculated by dividing the budgeted OH expense by the budgeted production under the rate per unit of production method. The method is more suitable for extractive industries.
The OH rate for a particular job is determined as a percentage of direct wages under the direct wages method. The percentage is arrived at by dividing the OH expenses by direct wages.
The overhead rate under the production hour method is calculated by dividing the OH expenses by the total productive hours of direct labor.
The OH rate under this method is calculated by dividing the total running expenses of a machine during a particular period by the number of hours the machine is estimated to work during the period.
The percentage of factory expenses to the value of direct material consumed in production is calculated to absorb the manufacturing over heads. The method is widely used in situations where the output is uniform, prices of materials are stable and also, where the proportion of OH to the total cost is significant.
The OH recovery rate under the prime cost method is calculated by dividing the budgeted OH expenses by the prime cost incurred by cost center.
Under the sale price method, the OH recovery rate is calculated by dividing the budgeted OH expenses by the sale price of units of production
The usage of supplementary rates facilitates the absorption of actual OH incurred for production. Correction of costs through supplementary rates is necessary for maintaining data for comparison. But, the rates can be determined only after the end of the accounting period. This method also requires a lot of clerical work.