OVERHEADS

ROHIT SANKHE P-29

SACHIN GOLAMWAR P-31

SUSHANT NADARGE P-41

JYOTI RAJAVAT P-51

SUHAS TOMPE P-55

SONAL MACHALE P-56

Introduction

• Total cost of a cost centre or cost unit has been divided into two categories such as direct cost and indirect cost. All indirect costs are called overheads.

• Overhead constitutes all indirect materials, indirect labor and indirect expenses

Classification Of Overheads

Based On Function

Factory OHS

Office & Administration

Selling & distribution

Based On Behavior

Fixed OverheadsVariable OverheadsSemi-variable Overheads

Semi-fixed Overhead

Cont…

Based On Elements

Indirect Materials

Indirect labour

Based on Control

Controllable Overheads

Uncontrollable Overheads

WHAT IS ABSORPTION?

• Costs apart from the prime cost are collectively called overheads.

• Under Absorption of Factory Overhead

• Over Absorption of Factory Overhead

REASONS OF UNDER / OVER ABSORPTION OF OVERHEADS

• Wrong estimation of overhead expenses

• Wrong estimation of work done

• Error in using method of absorption

• Seasonal fluctuation in overhead

• Under or over utilisation of capacity

• Wrong estimation of output

Under Absorption Of Factory Overheads

DATE PARTICULARS J/F AMOUNT DATE PARTICULARS J/F AMOUNT

1 To SLCA A/c. 200000 1 By WIP A/c. 400000

2 WLCA A/c. 145000 By Costing P/L A/c.

10000

3 GLA A/c. 65000

410000 410000

Over Absorption Of Factory Overheads

DATE PARTICULARS J/F AMOUNT DATE PARTICULARS J/F

AMOUNT

1 To SLCA A/c. 200000 1 By WIP A/C. 450000

2 To WLCA A/c. 145000

3 To GLA A/c. 65000

4 To Costing P/L A/c.

40000

450000 450000

TREATMENT OF UNDER OR OVER-ABSORPTION OF OVERHEADS

3 Methods:

Writing off to costing profit and loss account

Use of supplementary rate

Carry forward to the next year

Rates of Absorption of Overheads

Factory Overheads• Direct Wages

Office/Administrative Overheads• Works Cost

• Selling and Distribution Overheads

Works Cost

Bases for Absorption of Factory/Works/Manufacturing Overheads

• Direct Wages Rate

• Direct Material Rate

• Prime-Cost Rate

• Unit Rate

• Labour Hour Rate

• Machine Hour Rate

SELLING & DISTRIBUTION OVERHEADS

• The accounting of selling and distribution overhead requires three types

of analysis:

• According to nature or object of expenditure.

• By function or cost centre.

• By products or cost units.

SELLING & DISTRIBUTION OVERHEADS

• Methods• As a rate per article

• As a % of selling price of each article

• As a % of works cost

• debit is given to cost of sales account & credit is given to the selling & distribution overhead account, for recovery of such overhead

ADMINISTRATION OVERHEAD

• In small concerns administration overheads include the expenses of accounts and cost department also.

• Accounting treatment• Apportioning administrative overhead b/w production and

sales• Then charging to profit & loss a/c

Conclusion

• Overhead costs represent the third element of cost of product and

services.

• It is classified into manufacturing and non-manufacturing group.

• The latter head is further classified into selling and distribution overhead

and administrative overhead.

• Behavioral overheads are divided into fixed and variable group.

• After accumulation of overhead they need to be distributed

appropriately.

• Overhead of under/over absorbed are calculated in three methods