Overheads | Cost Accounting - B Com PDF Download

 Page 2


OVERHEADS /OVERHEAD COSTS
• Costs or expenses incurred over and above the 
prime cost
• Sum total of indirect material, indirect labor and 
other indirect expenses
• Any cost which is not directly attributable to a cost 
centre or cost unit
• “The aggregate of indirect material cost, indirect 
labor cost and indirect expenses” ICMA
• Since benefits of such expenses cannot be 
attached to a particular cost centre /cost unit, such 
expenses cannot directly allocated
• Are apportioned on equitable base
• Also known as burden, on cost
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OVERHEADS /OVERHEAD COSTS
• Costs or expenses incurred over and above the 
prime cost
• Sum total of indirect material, indirect labor and 
other indirect expenses
• Any cost which is not directly attributable to a cost 
centre or cost unit
• “The aggregate of indirect material cost, indirect 
labor cost and indirect expenses” ICMA
• Since benefits of such expenses cannot be 
attached to a particular cost centre /cost unit, such 
expenses cannot directly allocated
• Are apportioned on equitable base
• Also known as burden, on cost
Steps in Overhead Accounting 
? Overheads cannot be directly charged, but are 
apportioned equitable on some base. 
? Stages or steps involved in the  allocation of 
overheads to different cost centers -
1. Classification of overheads
2. Codification and collection of overheads
3. Allocation and apportionment of overheads 
(departmentalization of overheads)
4. Re-apportionment of overheads
5. Absorption of overheads 
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OVERHEADS /OVERHEAD COSTS
• Costs or expenses incurred over and above the 
prime cost
• Sum total of indirect material, indirect labor and 
other indirect expenses
• Any cost which is not directly attributable to a cost 
centre or cost unit
• “The aggregate of indirect material cost, indirect 
labor cost and indirect expenses” ICMA
• Since benefits of such expenses cannot be 
attached to a particular cost centre /cost unit, such 
expenses cannot directly allocated
• Are apportioned on equitable base
• Also known as burden, on cost
Steps in Overhead Accounting 
? Overheads cannot be directly charged, but are 
apportioned equitable on some base. 
? Stages or steps involved in the  allocation of 
overheads to different cost centers -
1. Classification of overheads
2. Codification and collection of overheads
3. Allocation and apportionment of overheads 
(departmentalization of overheads)
4. Re-apportionment of overheads
5. Absorption of overheads 
Classification of Overheads
• Process of grouping
• Divided into groups and sub groups 
Bases for Classification
I. Function or Functional classification
II. Elements or Element-wise classification
III. Nature or Behavior or Behavioral 
classification
IV. Controllability
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OVERHEADS /OVERHEAD COSTS
• Costs or expenses incurred over and above the 
prime cost
• Sum total of indirect material, indirect labor and 
other indirect expenses
• Any cost which is not directly attributable to a cost 
centre or cost unit
• “The aggregate of indirect material cost, indirect 
labor cost and indirect expenses” ICMA
• Since benefits of such expenses cannot be 
attached to a particular cost centre /cost unit, such 
expenses cannot directly allocated
• Are apportioned on equitable base
• Also known as burden, on cost
Steps in Overhead Accounting 
? Overheads cannot be directly charged, but are 
apportioned equitable on some base. 
? Stages or steps involved in the  allocation of 
overheads to different cost centers -
1. Classification of overheads
2. Codification and collection of overheads
3. Allocation and apportionment of overheads 
(departmentalization of overheads)
4. Re-apportionment of overheads
5. Absorption of overheads 
Classification of Overheads
• Process of grouping
• Divided into groups and sub groups 
Bases for Classification
I. Function or Functional classification
II. Elements or Element-wise classification
III. Nature or Behavior or Behavioral 
classification
IV. Controllability
I. Function or functional classification
a. Factory or manufacturing overheads
b. Office or administration overheads
c. Selling overheads
d. Distribution overheads
e. Research and development overheads
II. Elements or element-wise classification
a. Indirect material
b. Indirect labor
c. Indirect expense