7:25 Cece € PDF Viewer OVERHEAD COST CONTROL Session - 35. ntrodction (Greene ee expec which cnn be traced too ented with ny pcr cot wi ‘They a exposes which at ot dclysetiible ae allocable 1 est et Tey lade inet materials indect wages and oer employe cos and any ote iit expenses. Meaning ‘The toto all ndirct costs. indet mariah Ins nages aint expose) ishtown as overieaOvereads compre all niet een. Overeat re hoe con aed ‘us a busi, bt which ant be dct atbuted toa specifies acti. pods, ‘esevie Thus, ovtheod cots oot ec lal tothe peeratn of pratis- eis te aggregate of inet mater, nde wags and inet expenses, which cannot be ‘Oveead eso known by ote ems ks ones, spplemenary costs, nonproductive cos, ‘den, et homever the tem overeat imo! Somme Definition of Overhead According to CIMA, overhead cot ar defined he tot cont oF inirct mater, inet Tabor at indie! expenses. Tus ll edet cont ie inet mates niet abou ad indir expose ar cled ‘overeat nee ee creeds tel eae mee wh pene a ae ‘Aemaives veal reall expenses te than et expenses" ~ Wheldon “any cot of doing busines eter han a dite cot of n ut of rst or service”, Ee Klee ‘Overheads are cos of which dot result solely fa the existence of individ cost its” — W.M. Harper ‘mmportant Terminologes: ‘Can Cente is cation person ray boa Hem of ein, So, cot cent Help in ‘scotattng te ot by ooo sip pion ‘Cont cones are wo yp: 1. Pradution cost cee: Thi tha cost conte, Where the acu production works the ploe. Ex: Meking department, machine department and fishing ‘Sepuraen. 2 Service os cere: This sth on cone, hich ar ily or emesis ‘to podetion cost cones. Sts depariment, tine Kopin doprt, canton depart ‘Coun steaks pte cont of cost conte all-in ri lp in acerining the ‘st ofa produto serie. {Cos unit maybe classified iat two types I. Un of production Eg: a ilopam af a chemical. a eam of pope, tn of spa, meter able ee, 2 Unit of erie Eg Km an a cine ‘va cain bor, tel oom per dy {Cou Ober Con cect mye defined 3 “anythin fr which a separte erent os tiny be deste A son aceounant may want to know the cost of parol thing. Tht thin Called ont eject. ot objet Example Service Tekeplow, uni sevice, clei Process ‘Weaving proces aol il ring proces sie ftory Acivity Purchasing of ra rater Deparment Purchase depuimest. personel deparment. production depainent Classification of Overheads A. Eunction wie classification of weeds: 4b Produstion Overea FactoryOvehoat7:25 EN City 1D) SAA =18 Classification of Overheads A 1b Production vera Factory Ovehoa: Factory oven isthe tot indet cos asi with manuicring atv: lly iar with ptcasing of mers ad ends WA al ator expenses aca ‘Example Indic materials such as Ica, colon wae, ages of diet workers, factory rears ing ad heating, deprecation of la and machinery 2, Adminisrtion Overhead: este inet expenses wich are incu at he fice pemies amples Office rent andre, office ihn. postage. elephone carps et Ieofrs to those expenses hich re arsine with he marketing an sling ates, ample Slane and commision of salesman advertisement and palsy market rosa debe eta caning Department cation 1 ffs to to Hadas cost seca with the dst of fib pros Tesinning with packed sons avilable or dsatch and ening with making ronan returnable py connes any avait fre- ne ‘hice. esearch and Development Overheads eee tl net continued forthe esearch an development actives underaken ‘bythe organisation forthe devslapmne of ew pet, improvement of exiing pre 1 Indrct Materia: ‘Wiles under esi which anal be enfin the prodcion. For ena id, ‘malo 2. Indirect Labor: Labour changes thse mera, which cant be losses oa pra of com ae ‘led intr er. For exe, poral ict our sb of eecheper wages Tormuinenance works 3 Indies Expenses Indect expenses are expenses which can bella but which can be ace by ctor con nit For example, aig expen, depreciation of plat, machinery an tego (Behan wise elasifcation of verheals: 1h ised Overheads Indic expenes ae expentes which canbe allocated but wich can be abo by cont or con nit For otal aig penis, depreciation of plat, machinery a baiding 2. Varihle Oveheat: (Oven in acconance wi thence or decease inthe volume prdcton or vlume and oxpat Examples: Power nfs ightingrpar an mains. Although the amount variable ‘vere change, th cost pe ni of op es ore costae tere eves of ouput‘SEM. 4- COST ACCOUNTING- UNIT 04: OVERHEAD COST CONTROL 3. Semi-Variable/ Semi- Fixed Overhead: ‘This represents partly fixed and partly variable overhead. That is, it remains constant up to certain level and then variant at a constant rate up to the next level. Examples: In case of telephone charges the rental charge remains constant but call charges vary according to the calls made. Documents for Collection of Overheads: The main sources from which overhead expenses are collected are as follows 1. Stores Requisition: Indirect materials like soap, oil, cotton waste, grease, brushes, brooms feat, Are issued from stores on the basis of stores requisition notes which are priced and ‘charged to the cost centre which used them. 2. Invoices: Invoices for material and services are entered in purchase journal with proper accounts code and cost center codes before making payments. Purchase journal, if manually maintained, contains separate columns for materials and overhead expenses along with advance payment and accrued charges. 3. Gash Book: Where cash transactions occur for the procurement of material and services, ‘cash book is analyzed and indirect expenses are collected under account code and cost. center code wise. 4. Wages Analysis Book: Wages analysis indicates overheads control accounts to which salaries and wages are to be booked. 5. Other Registers and Reports: For collection of depreciation amount, plant or fixed assets register hast to be scrutinized. Similarly, for scrap, waste and spoiled work or idle facilities, relevant reports have to be referred. 6. Journal entries: Monthly apportionments from payments in advance like insurance and tax, accruals for unpaid salaries and wages or rent, notional charges for rent, interest, etc. are all collected from Journal entries. 7. Collection registers: In some organisation, specifically cost collection registers are maintained. Whenever costs are incurred, the same is approved from the appropriate authority, entered in this register. The entry in this register carries a job, product or an activity specific details serving as a source for cost collection.Session - 36 Accounting and Control of Overheads Distribution of overhead costo cost units is one ofthe most complex problems of cost accounting. ‘This is because overhead cost cannot be identified with individual cost units and there are 10 ceaunting means of exact distribation, Therefore, such costs are analysed and distributed to ‘aous cost centres and cost units on arbitrary basis, ‘Steps in Distribution of Overheads: ‘The following procedure is followed in Finding out the overhead cost of individual cost unis of Provicton: 1 Colleton of overbead under separate headings Allocation and absorption to prouetion deparnens and service departments IIL, Re-appropriation of total overhead of each service department to production departments IV, Absorption of Overhead. Collection of Overhead Under Separate Headin 4) Stores requisition ») Invoices ©) Cash Book 8) Wages Analysis Book ©) Other Registers and Reports 1 Journal entries 8) Collection egster Alllocation and Absorption to Produ 4) Allocation of Overheads: Allocation of oveeads refers to assigning whole item of cost direct o& particular cost ‘centre oF cost unit, t implies relating overheads directly tothe various departments mn Departments and Service Departments: Cost allocation is possible ony ifthe overhead is specifically related toa particular cost centre or cost unit For example, salary paid to asuporvsor whois in-charge ofa particular product ‘department, canbe allocated tothe specific product or department; where separate power meters fare installed for each department, the electricity cost of that department is allocated to that a Sp Ere see a a ‘Noga 3 | Laboratory eee 6 | Maintenance Deportment a oh o-phisiieael 2) Apportionment to Production Department a well as Service Departments: )Nomeiprcal bas of Distribution: Under ts mead expenses of one service department gencraly te one which ‘Spurmens) are aporoned aller departent othe proportion of bene ‘Stig em Since a heen ee rate eins ‘at ith G)_ Reciprocal basis of Distribution: ‘The etd esgnie the fact hat where 0 o moe service department ender series to each ther, cach Separimen esving rach series sl be charg Foowed for mersoace Snbton (2) Repeated Dstesbuton Meth ‘The overhead expenses, scoring primary dstibuion summary we writen ‘gant the espace doparmens one afl ata. Then the expenses of ‘Sevce departments are rasibtd tothe predton department aswell ‘rveesdparnent on he Dns of oped prcerage. Ths proces eps ‘tlhe Figures of the seve departments te exhausted o become to sal, () Sinltancous Equation Methad: "Thc method inlet flowing eps pa arin Depart alg cation Cac the wa eos of each serie department by fring a sing sinuses ‘+ Reapponion ht coss of ach ie depart ol te Paton Depron he est ie pecnages7:26 1D) SAA =18 summary Problem: 1 Session -37 Primary Overhead Distribution Summary ‘A Suemeat of elloation and appstionnent of overhead is called overhead distibtion ‘The llowing informations supplied from the casting records of company. Particulars ee Particulars ia Ra 2300 [Twas 1000 Manian 1200 [Employer = antbaian to PF | — 300 Depeesaton| 00 | Ee i800 Lighing 20 | Superson 000 peas ; Pane - Flow Spice a. To Ti0" w en ‘Nowot Workers 2 Te: i ‘oF Tal Diet Wages ‘aa | 000 | ~~ ao00 | 2000. Con of machinery (2) 2000 | — 18000 | 13000 | eo Stok of god 1000] 9000 [evo [= Prepare statement sowing apporioament of os 9 Was depaienis Solution: Primary Overhead Distribution Summary Ta] a] B 7c] Expemes | Baisat Apportionment [TU] A | BT S| Be eat Flore space [15193 —|—2000 780] — sso] 480] 380 Matieance | Cost of machin (43:2) | 1200] a0 | 360 | 240 [120 Depreciation | Costof machine (321 | 900] 360] —270| 1s | 90 Lighting [Fore spvs (15119) | 200] — 78| — ss[ 4525 Insurance — | Sick of pas [5:32 || 000] —s00| 300 | 200 Employers omit | Dire wapes [4321] sm] 120] 90] | 30 ier Enexgy——_| Conta machine | 1800] — Ta] — sao] — sa | — ra Supervision No.of workers (6432) [3000] 00] — a0 | aon | 300 Total ietoo | anus | 394s [2135 1095 et taming Department fast caton Cateuttions 1. Ron: 2000 On the asf flor ae Deparimenis [8 in € Doar Poor space 180 0 30 ers Ratio 8 cele fee ee a Arpemioomest eaaxnoo0 || ivaoxaoen |e) 2°] saoxaeeo | @ 75 3 0 302000 21 Mainenace: 8, 1200 On the bas of ost of machine Deparinenis[ A n c D [roar costo 2M 1 x om 21000 000 000 o00 Ratio mm —fe[ ie i é « 3 z The Reportcamet [gyoxtan0 |: [soxiaon| : [2oxi200| : | vioxi200 @ = a ea roi€ PDF Viewer ee Depreciation i z a 4. Lighting: £200 On the bass flor space Departments | ® 2 € Dad Ras Fn Arrenser™| saoxa00| : [vaoxzon| + | viaxave | | saoxav0 @ 75 3 = 33 [ aa 5 Insurance: % 1000 On he basis of tock of good: pa taming Department of ate con Deparinenis | _® Ds 7p | row Siok gods | — 1500 Ecc a 5 x 2 = fan Aeporteamest Shoxicen || _aa0xion0 wxioo | - | - Apremioonen’ | Sroxro0o |:] saoxto09 |=] 20x @ em im oar 6 ployer comitution to. & 300 On the hai of irc wages Departments [A 5 © D [Tar Ratio = 6 + oa ry 5 z 10 etamplovers | snoxsoo | : | soxs00 |:| 2oxs00 }:| vtoxs00 Pe 1. ery: 1800 On the bss of on of macine: Dearne [a z € Drea ox zaoon | | vaano | | 2m woof Ratio mH iH wpe ts}. a3 2-1 Arremcemert | yioxiso0| =| s1oxtaoo] : |>uoxreco| + | v10x:s09 © i 30 3a rao 4 Sopevson: £3010 0 thes No. of workers Departments [—X 5 © D[Twar Revol woken | — 24 6 iz ts Ratio 6—ht sf 2s Arremcamen'| gisxson || wasxsam || sasxsom |] 2isxs00 © 00 wo a a0€ PDF Viewer Primary Overhead Distribution Summary Problem: 2 Dalya Co, Lid has dee redtiondeparments, A, B and Cand two service departments Dani. ‘Te following Figures ate exacted rom the ecords ofthe compan. Particulars 2 | Panieutas | eat rates 3000 | Genera guns ot Inder wages 1300 | Power 1500 Depreciation of Machinery | 1000 | Suees Toon Following Fer details ate eal: ow Ss. 10000 | 2000 | —2s00| — 3000 2000s Lips Poe of ol isl mf ols Diet wags 100 | sow | stan] —so00| —1500| 50 ‘Valu of acer) 2000 «ann | vou | ro500| — samo | 000 ‘Appoton te cot of varias deparens onthe ow equitable Bas a Reson tare | aataal [ FT mace pen | SD Dasa =o Pool Sa Rava [eeecesenay | son] — tao iso sw| tao} sa bana ‘Direct wages (6:4:6:3:1] | 1500 450 300} 450 2s 1s = - fri [fn frow| seo] | wo] aa] 0 Gees Htigerome 250211 | «ol v0 19] 20 we] rower | Erernestne isu | anf —s0[ sof wo Snag [Toe — |r| Tear a Tarts Os [or —n| |u| a | — alte: Aopeoncnn of Veins examen grofton snd va deg unsas om mwa. suutable bis 1 Rent Ras: & $00 onthe es of Pl a Deane [A ipcea pen cern eetoren| recor a a A ET EE eae @— nf a0 | 00 | 000 | ‘Sere SSE ORT [ERTS | SRG | 2 a wow | “ta” | "00 2 Indes wages t 1500 On the tsi of ites wags Depames [Ae [eo rear Brees sean | ao | so | ism | 0< > Inet wages € 1800 On Deparments [A = € D = [rear ai |= |» [5 Hl é + 6 1a pein Tica | eaux | .2oxisoo | e215 | 320xiseo | vanxso0 © 50 [300 [aso [225 [3s [a0 5. Depron of Machinery: 1000 On te ns a le of Machin: ‘Deparment [a 5 € D =| tou Nate ey | einen | somo | 00m | somo | sao Sr e son] !2sex1000 | 16scx1000 | 0x1e00|1sextou>| soxscond on @ 000 | sa00 [woo [300 | 00 [10000 4 Geert Liging 600 On he sis of Lip pos: pa aig Department ol agate Eaton Dostana [a |B |e = [oar TighPaas [101s a0 [of Tao a a Approaner eFGenerd "| 2112xe00 | v42xson| a12xe00| 212x200] a2xs00| - igh ® a 5. Rowe: 1500 On tbs fH Pof Mash: Daarteew [a B_[—e—[ FT ee «0 30 0 10 . . Rain a z 5 a Apportionment | 531590 | visxison | ssxisoo | 1/isxisoo | . Foner © oo [300 | 500 | 100 | = Faso 4 Sia 1000 On he bss of et Wages Dosis [A z c > = [oat Das Wages | 3000 | ~2000| aan [1500 | 300 ian 30 20 30 1s s : z z z z 9 ‘Apgeronset|aoxioo | 420x000 |eanxro | sa0xt000 | 120x10000| = Ce 3000, 2000, 3000, 1500 500 10000.