learn costing basics

2. COST & WORKS
ACCOUNTING

3. TOPIC NAME:- COLLECTION,
CLASSIFICATION, ALLOCATION,
CODIFICATION OF OVERHEAD

4. BRANCHES OF ACCOUNTING
BOOK-KEEPING
FINANCIAL ACCOUNTING
COST ACCOUNTING
MANAGEMENT ACCOUNTING

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

6. ELEMENT OF COST
MATERIAL LABOUR
EXPENSES
COST COST
DIRECT DIRECT INDIRECT
INDIRECT DIRECT INDIRECT
MATERIAL EXPENSES EXPENSES
MATERIAL LABOUR LABOUR
OVERHEAD

7. 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

8. 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

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

10. 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.)

11. 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 Decision-
making And Proper Budgeting.

12. CLASSIFIATION OF OVERHEAD
BY BY BY BY
FUNCTIONAL BEHAVIOURWISE ELEMENTWISE CONTROLLABILITY
Factory Fixed Ind. Controllable
exp. exp. material exp.
Selling Variable
exp. exp. Ind. Labour
Uncontrolla
-ble exp.
Distribution Semi Ind.
exp. variable expenses
exp.

13. 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.

14. 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.

15. 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.

16. Allocation and apportionment these terms are quit
same like they charged expenses to cost centers but
exact meaning of these term’s is different i.e.
POINT OF ALLOCATION APPORTIONMENT
DIFFERENTIATION
MEANING IDENTIFYING A COST ALLOTMENT OF
CENTERS AND CHARGING PROPORTIONS OF
IT’S EXPENSES IN FULL. COMMON COST TO
VARIOUS COST CENTERS.
NATURE OF EXPENSES SPECIFIC AND GENERAL AND COMMON
IDENTIFIABLE
NUMBER OF COST ONE MANY
CENTERS
AMOUNT OF OVERHEAD CHARGED IN FULL CHARGED IN
PRAPORTIONS

17. 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

18. 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