Presentation on theme: "... Overhead oo Works overhead Distribution overhead Administration overhead Indirect labour Indirect expenses Indirect material Selling overhead Administration."— Presentation transcript:
Overhead oo Works overhead Distribution overhead Administration overhead Indirect labour Indirect expenses Indirect material Selling overhead Administration overhead
Direct material Are those materials which can be identified in the product & directly changed to the product. or directly enter the production & form a part of the finished product. Exam: (a) wood used in production of table & chair
Conti.. (b) cloth in dress making (c) bricks in building a house
Classification of raw material (a) parts purchased- like- batteries for radio & tyres for cycle (b) primary packing material- like- cartons, cardboard boxes used to protect finished goods from climate conditions.
Indirect materials Can not be classified as direct material exam- threads, cleaning materials, brooms, material of repairs, Or indirect material required in production process but not necessary built into the production.
Direct labour The labour cost incurred on the employee who are engaged directly in making the product. exam- wages as paid to the workers, engaged in matching department, assembling dep,etc
Indirect labour The wages paid to supervisors, inspectors, etc. though not direct labour. Direct expenses: all expenses (apart from direct material & direct labour) incurred specifically for a particular product, job, department etc. These expenses directly changed to the product
Example of direct expenses Excise duty, hire charge of a plant, cost of design & layout Indirect expenses : are incurred by the organization in carrying out their total business activities. exam: rent, taxes, insurance, lighting, telephone, postage depreciation etc.
Overheads Are all expenses other than direct expenses or aggregate of the cost of indirect material, labour & expenses. (a) production cost: factory rent, rates,& lighting insurance of plant & machinery and furniture
Conti…. carriage inward wages & incentive to indirect workers depreciation of plant and machinery Repair & maintenance of plant and machinery & factory premise
Selling cost sales men’s salary & commission showroom expenses advertisement charges cost of catalogues, price list & sample depreciation, insurance & maintenance of sales office bad debts and costs incurred for collection of bad debt discount.
Distribution costs carriage & freight outwards packing & delivery charge depreciation, insurance & maintain of delivery vehicle. wages of packers & delivery boys. running expenses of delivery vehicles
Costs Prime cost = direct cost + direct labour + direct expanses Works or factory cost = prime cost + factory overheads Cost of production = factory cost + administration overheads
Overhead Allocation and apportionment of overhead Absorption of overhead (a) allocation vs. apportionment : allocation related with some specific department or cost centre whereas apportionment is related with several departments and cost centers
Conti.. Allocation deals with whole items of costs whereas apportionment deals with proportions of items of costs (2) absorption of overhead: after allocation and apportionment of overhead costs to cost centers, the next step in accounting of overhead is absorption of overhead
Absorption All job,process or services pass through one or more producing centers all the departmental overheads are charged to manufacturing units of that department is called absorption of overhead. it refers to charging of overheads to individual products or job.