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Basics of Cost Accounting - 8: Overheads

Overheads Costs may be classified into direct of indirect cost: Direct cost can be conveniently traced into or identified with the product manufactures. Direct costs which are also called “Prime Cost” or “Basic Cost which represent, the cost which can be easily and directly identified with the cost centers or cost units. But indirect cost represents the costs which are not directly identifiable with the cost centers with the cost centers. These indirect cost are called "Overhead Expenses” Meaning: Overheads is the aggregate of indirect material cost, indirect labour cost and indirect expenses which cannot be conveniently identified with and directly allocated to a particular cost center or cost object in an economically feasible way. It is also known as indirect cost or burden or on cost. Overheads = Indirect Material + Indirect Wa...

Basics of Cost Accounting - 9: Allocation, Apportionment and Reapportionment of Overheads

Allocation, Apportionment and Reapportionment of Overheads The objective of Cost Accounting is classifying costs and recording an appropriate allocation of expenditure for the determination of the costs of products or services, and for the presentation of suitably arranged data for the purpose of control and guidance of management A) Allocation of Overheads When items of cost are identifiable directly with some products or departments such costs are charged to cost centres. This process is known as cost allocation. It is the charging of discrete, identifiable items of cost to cost centres or cost units. It is complete distribution of an item of overhead to the departments or products on logical or equitable basis is called allocation. Where a cost can be clearly identified with a cost centre or cost unit, then it can be allocated to that particular cost centre or unit. Allocation is the process by which cost items are charg...

Basics of Cost Accounting - 1: Introduction

Introduction Business needs continuous information regarding costs of business activities to plan accurately for the future, to control business results, and to make a proper appraisal of the performance of persons working in an organisation. The fulfillment of these goals requires details about the costs incurred and benefits (revenue) obtained which are provided by cost accounting and management accounting. Concept of Cost, Costing, Cost Accounting and Cost Accountancy A) Cost: The term cost is understood in a variety of ways. The meaning of cost is different according to different point of view. In ancient period only labour expenses were included in term of cost. However with the development of civilisation, the production methods were changed and material, labour and other expenses are considered in the concept of cost. Cost is the amount of resources spent for manufacturing goods or providing services. Definitions: 1. According to Chartered Institute of Ma...

Prof. Pratik Gohil

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