This document discusses the collection and allocation of overhead costs. It defines overhead costs as indirect expenses associated with production. Overhead costs are collected and assigned code numbers for identification and tracking purposes. They are gathered from various sources like stores requisitions, wage records, invoices, and meter readings. The overhead costs are then allocated or apportioned among different cost centers or departments based on actual usage or an equitable basis. This process involves both primary and secondary distribution of overhead costs.

1. WELCOME TO THE WORLD OF LEARNING

2. OVERHEADS (CONT….)
COLLECTION OF OVERHEADS

3. COL L E CTION OF OVE RHE AD
The collection of overhead is the process of recording each
item of cost in the book of accounts maintained for the
purpose of identification of cost. It is the process of
accumulating or gathering indirect expenses
A code number is allotted to a group of similar items of
indirect costs those are of two types
1. Standing order number
2. Cost accounting number

4. Standing Order Number
The number provided to items of overheads of production are known
as standing order numbers.
Cost Accounting Numbers
The number provided to the items of office, selling and distribution
overheads are known as cost accounting numbers.
Indirect costs are usually collected from the following documents or
sources of records.
1. Stores requisitions for indirect materials supplied from stores. It is
prepared for the issue of indirect materials like cotton waste,
lubricants, scraps, brushes, brooms etc.

5. 2. Journal
This book provides data about the accrued charges and payments
made in advance.
3. Wage analysis book
This book provides information relating indirect wages, overtime, etc.
to be treated as overheads
4. Invoice
The Invoice or purchase journal gives information about the indirect
method and stores purchased.
5. Cash Book
For items of indirect cost paid in cash.

6. 6. Plant register
for expenses like depreciation reports regarding scrap waste
idle time, idle machine and idle facility.
7. Supplies Invoices
for factory stationery
8. Meter Reading
for power and lightening.
9. Lease Deed
for rent, local government assessment records for rates etc.

7. Allocation and apportionment of overheads (departmentalization of
overheads)
allocation of overheads
after having collected the overheads under proper standing order
numbers the next step is to arrive at the amount for each
department or cost centre. This may be through allocation or
absorption. According to the chartered institute of management
accountants, London, cost allocation is “that part of cost attribution
which charges a specific cost to a cost centre or cost unit”. Thus, the
wages paid to maintenance workers as obtained from wages
analysis book can be allocated directly to maintenance service cost
centre. Similarly, indirect material cost can also be allocated to
different cost centres according to use by pricing stores requisitions.

8. Apportionment of overheads
Apportionment refers to the distribution of overheads among
departments or cost centres on an equitable basis. ICMA, london has
defined it as “that part of cost attribution which shares costs among
two or more cost centres or cost units in proportion to the estimated
benefit received, using a proxy”. Apportionment is done in case of
those overhead items which cannot be wholly allocated to a
particular department. For example, the salary paid to the works
manager of the factory, factory rent, general manager’s salary etc.
Cannot be charged wholly to a particular department or cost centre,
but will have to be charged to all departments or cost centres on an
equitable basis.

9. Overheads can be classified into two ways:
1. Primary distribution of overheads
primary distribution of overhead involves allocation or
apportionment of different items of overhead to all departments of
a factory. This is also known as departmentalisation of overheads.
2. Re-apportionment of service department overheads (secondary
distribution)
the process of redistribution of the cost of service departments
among the production departments is known as secondary
distribution.

10. THANK YOU
-LAVITA BIDARI