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Basic costing/ Types of cost/Overheads
COST & WORKS
ACCOUNTING
TOPIC NAME:- COLLECTION,
CLASSIFICATION, ALLOCATION,
CODIFICATION OF OVERHEAD
BRANCHES OF ACCOUNTING
BOOK-KEEPING
FINANCIAL ACCOUNTING
COST ACCOUNTING
MANAGEMENT ACCOUNTING
COST ACCOUNTING
 COST ACCOUNTING IS THE
CLASSIFICATION,RECORDING, AND
APPROPRIATE ALLOCATION OF
EXPENDITURE FOR THE DETERMINATION OF
THE COSTS OF THE PRODUCT OR SERVICES
ELEMENT OF COST

      MATERIAL               LABOUR
                                                  EXPENSES
       COST                   COST




 DIRECT                                      DIRECT     INDIRECT
            INDIRECT    DIRECT   INDIRECT
MATERIAL                                    EXPENSES    EXPENSES
            MATERIAL   LABOUR     LABOUR




                            OVERHEAD
OVERHEAD
       OVERHEAD MAY BE DEFINED AS THE COST
OF INDIRECT MATERIALS , INDIRECT LABOUR AND
SUCH OTHER EXPENSES INCLUDING SERVICES WHICH
CANNOT        CONVENIENTLY BE CHARGED TO A
SPECIFIC 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 which
are part and parcel of the total cost of production.
But there is a great difficulty to know the amount
if indirect cost of which a final output should bear.
Because there is no direct relationship between
indirect cost(overhead) and the production.
Therefor through different stages of distribution
of oh these are finally charged(i.E.ABSORBED) to
the final output there are some stages to
distribute the overhead
Stages of distribution
1) COLLECTION
2) CLASSIFICATION
3) ALLOCATION
4) APPORTIONMENT
5) RE-APPORTIONMENT
6) ABSORPTION OF OVERHEAD
COLLECTION OF OVERHEAD
     This Involves Collection And Accumulation Of Data
Relating To Overheads Based On Past Information And
Adjusted For Known Current Trends And Projected Into
The 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 processes
firstly the specification of definite groups
according to which the expenses should be
classified and secondly ,the placing of several
types of expenses into one or the other of these
groups according to their common characteristics
            Overhead Are Classified According To
Nature or Function . This Facilities Decision-
making And Proper Budgeting.
CLASSIFIATION OF OVERHEAD


    BY                BY            BY                 BY
FUNCTIONAL      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 Items
Of Overheads Are Allocated To Production And
Service Departments. Cost Allocation Is Defined As
The Allotment Of Whole Items Of Cost To Cost
Centers 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 meet
both 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
      DEPARTMENTALISATION
1) BETTER ESTIMATION OF EXPENSES
2) BETTER CONTROL
3) ASCERTAINMENT OF COST FOR EACH
    DEPARTMENT
4) SUITABLE METHOD OF COSTING.
Allocation and apportionment these terms are quit
same like they charged expenses to cost centers but
exact meaning of these term’s is different i.e.
POINT OF             ALLOCATION               APPORTIONMENT
DIFFERENTIATION

MEANING              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
                     IDENTIFIABLE

NUMBER OF COST       ONE                      MANY
CENTERS

AMOUNT OF OVERHEAD   CHARGED IN FULL          CHARGED IN
                                              PRAPORTIONS
CODIFICATION OF OVERHEAD
               It Is Technique Of Intelligently Describing In
Numbers/Letters Or A Combination Of Both, For The
Lengthy Description Of Numerous Cost Accounting.
  OBJECTIVES
 1) group items of similar nature that are amenable to
apportionment of OH exp. On the same basis
 2) to carry out an analysis of overhead exp. For control
Purposes
 3) to reduce the task of maintaining a huge numbers of
account
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
Basic costing/ Types of cost/Overheads

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Basic costing/ Types of cost/Overheads

  • 3. TOPIC NAME:- COLLECTION, CLASSIFICATION, ALLOCATION, CODIFICATION OF OVERHEAD
  • 4. BRANCHES OF ACCOUNTING BOOK-KEEPING FINANCIAL ACCOUNTING COST ACCOUNTING MANAGEMENT ACCOUNTING
  • 5. COST ACCOUNTING COST ACCOUNTING IS THE CLASSIFICATION,RECORDING, AND APPROPRIATE ALLOCATION OF EXPENDITURE FOR THE DETERMINATION OF THE COSTS OF THE PRODUCT OR SERVICES
  • 6. ELEMENT OF COST MATERIAL LABOUR EXPENSES COST COST DIRECT DIRECT INDIRECT INDIRECT DIRECT INDIRECT MATERIAL EXPENSES EXPENSES MATERIAL LABOUR LABOUR OVERHEAD
  • 7. OVERHEAD OVERHEAD MAY BE DEFINED AS THE COST OF INDIRECT MATERIALS , INDIRECT LABOUR AND SUCH OTHER EXPENSES INCLUDING SERVICES WHICH CANNOT CONVENIENTLY BE CHARGED TO A SPECIFIC UNIT (I.E. INDIRECT EXPENSES). Objective of study of overhead costs 1)to link the overheads to output 2)to control overhead
  • 8. PRODUCTION OVERHEADS Overheads means all indirect costs which are part and parcel of the total cost of production. But there is a great difficulty to know the amount if indirect cost of which a final output should bear. Because there is no direct relationship between indirect cost(overhead) and the production. Therefor through different stages of distribution of oh these are finally charged(i.E.ABSORBED) to the final output there are some stages to distribute the overhead
  • 9. Stages of distribution 1) COLLECTION 2) CLASSIFICATION 3) ALLOCATION 4) APPORTIONMENT 5) RE-APPORTIONMENT 6) ABSORPTION OF OVERHEAD
  • 10. COLLECTION OF OVERHEAD This Involves Collection And Accumulation Of Data Relating To Overheads Based On Past Information And Adjusted For Known Current Trends And Projected Into The 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.)
  • 11. Classification of overhead classification involves two processes firstly the specification of definite groups according to which the expenses should be classified and secondly ,the placing of several types of expenses into one or the other of these groups according to their common characteristics Overhead Are Classified According To Nature or Function . This Facilities Decision- making And Proper Budgeting.
  • 12. CLASSIFIATION OF OVERHEAD BY BY BY BY FUNCTIONAL 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.
  • 13. ALLOCATION OF COST Allocation Of Overhead Means, Whole Items Of Overheads Are Allocated To Production And Service Departments. Cost Allocation Is Defined As The Allotment Of Whole Items Of Cost To Cost Centers 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.
  • 14. Allocation of overhead should meet both 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.
  • 15. ADVANTAGES OF ALLOCATION OR DEPARTMENTALISATION 1) BETTER ESTIMATION OF EXPENSES 2) BETTER CONTROL 3) ASCERTAINMENT OF COST FOR EACH DEPARTMENT 4) SUITABLE METHOD OF COSTING.
  • 16. Allocation and apportionment these terms are quit same like they charged expenses to cost centers but exact meaning of these term’s is different i.e. POINT OF ALLOCATION APPORTIONMENT DIFFERENTIATION MEANING 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 IDENTIFIABLE NUMBER OF COST ONE MANY CENTERS AMOUNT OF OVERHEAD CHARGED IN FULL CHARGED IN PRAPORTIONS
  • 17. CODIFICATION OF OVERHEAD It Is Technique Of Intelligently Describing In Numbers/Letters Or A Combination Of Both, For The Lengthy Description Of Numerous Cost Accounting. OBJECTIVES 1) group items of similar nature that are amenable to apportionment of OH exp. On the same basis 2) to carry out an analysis of overhead exp. For control Purposes 3) to reduce the task of maintaining a huge numbers of account
  • 18. 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