COST & WORKS ACCOUNTING

TOPIC NAME:- COLLECTION,

CLASSIFICATION, ALLOCATION, CODIFICATION OF OVERHEAD

BRANCHES OF ACCOUNTING
BOOK-KEEPING FINANCIAL ACCOUNTING COST ACCOUNTING MANAGEMENT ACCOUNTING

COST ACCOUNTING
COST ACCOUNTING IS THE CLASSIFICATION,RECORDING, AND APPROPRIATE ALLOCATION OF EXPENDITURE FOR THE DETERMINATION OF THE COSTS OF THE PRODUCT OR SERVICES

ELEMENT OF COST
MATERIAL COST

LABOUR COST

EXPENSES

DIRECT MATERIAL

INDIRECT MATERIAL

DIRECT LABOUR

INDIRECT LABOUR

DIRECT EXPENSES

INDIRECT EXPENSES

OVERHEAD

OVERHEAD
OVERHEAD MAY BE DEFINED AS THE COST OF INDIRECT MATERIALS , INDIRECT LABOUR AND SUCH OTHER EXPENSES INCLUDING SERVICES WHICH CANNOT CONVENIENTLY BE CHARGED TO A SPECIFIC UNIT (I.E. INDIRECT EXPENSES).

Objective of study of overhead costs

1)to link the overheads to output 2)to control overhead

PRODUCTION OVERHEADS
Overheads means all indirect costs which are part and parcel of the total cost of production. But there is a great difficulty to know the amount if indirect cost of which a final output should bear. Because there is no direct relationship between indirect cost(overhead) and the production. Therefor through different stages of distribution of oh these are finally charged(i.E.ABSORBED) to the final output there are some stages to distribute the overhead

Stages of distribution
1) COLLECTION 2) CLASSIFICATION 3) ALLOCATION 4) APPORTIONMENT 5) RE-APPORTIONMENT 6) ABSORPTION OF OVERHEAD

COLLECTION OF OVERHEAD
This Involves Collection And Accumulation Of Data Relating To Overheads Based On Past Information And Adjusted For Known Current Trends And Projected Into The Future.

Information Collected From

1) Invoices (INDIRECT 2) Stores Requisition MATERIAL) 3) purchase requisition 4) Wages Analysis Book (indirect Labour) 5) Journal Entries (indirect exp.)

Classification of overhead
classification involves two processes firstly the specification of definite groups according to which the expenses should be classified and secondly ,the placing of several types of expenses into one or the other of these groups according to their common characteristics Overhead Are Classified According To Nature or Function . This Facilities Decisionmaking And Proper Budgeting.

CLASSIFIATION OF OVERHEAD

BY FUNCTIONAL

BY BEHAVIOURWISE

BY ELEMENTWISE

BY CONTROLLABILITY

Factory exp. Selling exp. Distribution exp.

Fixed exp. Variable exp. Semi variable exp.

Ind. material Ind. Labour Ind. expenses

Controllable exp. Uncontrolla -ble exp.

ALLOCATION OF COST
Allocation Of Overhead Means, Whole Items Of Overheads Are Allocated To Production And Service Departments. Cost Allocation Is Defined As The Allotment Of Whole Items Of Cost To Cost Centers Or Cost Unit e.g. indirect wages of production dept. A is to be allocated to dept. A only. Similarly, wages of service dept. S is to be allocated to dept. S only.

Allocation of overhead should meet both the following condition

1) the cost centers must have caused the overhead to be incurred 2) the exact amount incurred in a cost centers must be known.

ADVANTAGES OF ALLOCATION OR DEPARTMENTALISATION 1) BETTER ESTIMATION OF EXPENSES 2) BETTER CONTROL 3) ASCERTAINMENT OF COST FOR EACH DEPARTMENT 4) SUITABLE METHOD OF COSTING.

Allocation and apportionment these terms are quit same like they charged expenses to cost centers but exact meaning of these terms is different i.e.
POINT OF DIFFERENTIATION MEANING ALLOCATION APPORTIONMENT

IDENTIFYING A COST CENTERS AND CHARGING ITS EXPENSES IN FULL. SPECIFIC AND IDENTIFIABLE ONE

ALLOTMENT OF PROPORTIONS OF COMMON COST TO VARIOUS COST CENTERS. GENERAL AND COMMON

NATURE OF EXPENSES

NUMBER OF COST CENTERS AMOUNT OF OVERHEAD

MANY

CHARGED IN FULL

CHARGED IN PRAPORTIONS

CODIFICATION OF OVERHEAD
It Is Technique Of Intelligently Describing In Numbers/Letters Or A Combination Of Both, For The Lengthy Description Of Numerous Cost Accounting. OBJECTIVES 1) group items of similar nature that are amenable to apportionment of OH exp. On the same basis 2) to carry out an analysis of overhead exp. For control Purposes 3) to reduce the task of maintaining a huge numbers of account

Methods of codification of overheads

1)Serial Number System 2)Decimal System 3)Alphabetical System 4)Combination Of Alphabetical And Numerical System 5)Numerical Code