Accounting for Overheads (Short Notes)
Direct and Indirect expenses
- Direct
expenses are the part of prime cost of a productions
- Indirect
expenses are known as Overheads
Absorption Costing
Production
overheads are recovered by absorbing them into the cost of a product and this
process is therefore called absorption costing.
Allocation
It involves
charging overheads directly to specific departments.
Apportionment
When
overheads relate to different departments then they must be shared between
these departments this method is known is apportionment. The bases of
apportionment may be number of employees, floor area etc.
Reciprocal reapportionment
When service
cost centers do work for each other then this method is used it is also known
as repeated distribution method.
Under and over – absorption overheads
When at the
end of the period the overhead absorbed is greater than the actual overheads
then this is known as over – absorption
When the
overheads absorbed is less than the actual overheads then this is known as
under – absorption overheads.
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