costing

1. Costing and Control of Administrative, selling and Distribution Overhead Chapter 11 Made By: Anuj Nijhon

2. Administrative Overheads Administrative Overheads are incurred for planning, general management and control of an organization. The administrative overheads include the following cost items: Indirect material: planning stationery used in office, other office supplies Indirect labor: salary allowances of office and administrative staff including board of directors, salary allowances of legal advisor officer and staff Indirect expenses: 1- office rent, rates, and insurance 2- office lighting, heating, and cleaning 3- depreciation and repair of office building, 4- legal charges, 5- bank charges, 6- trade subscriptions and donations 7-miscellaneous office expenses.

3. Accounting Methods These are three methods of accounting of administrative overheads: Transfer to cost profit and loss account. Apportionment to manufacturing, selling and distribution divisions. Addition as a separate item of cost

4. Transfer to Costing Profit and Loss Account According to this method, administrative overheads are treated as period costs to be excluded from product costs for two reasons: They are mainly fixed cost which do not vary with production/sales There is no equitable basis to charge them to other products

5. Apportionment to manufacturing and selling and distribution divisions This method recognizes only two basic functions of a manufacturing organization namely: Manufacturing Selling and distribution

6. Addition as a separate item of cost Depending upon the suitability and equitability under the given circumstances, the administrative overhead rate can be computed using one of the following bases: Sales value/quantity Cost of sales/ selling cost Work / manufacturing cost Conversion costs Production units Gross Profit

7. Selling and Distribution Overheads Selling overheads are costs incurred in selling to existing customers, retaining customers and in promoting sales to potential customers. They consist of following items: Direct selling cost: such cost are incurred for obtaining orders, market research, and supply of goods to customers. Advertising and sales promotion cost Credit and Collection Costs: include expenses relating to collection of receivables and bad debts. Financial and general Administrative cost: included in this category are 1- royalty on sales 2- discounts and allowances 3- sales invoicing 4- accounts

8. Distribution overheads begins when a order has been obtained, and generally end when goods are to be dispatched. They include the following: Transportation costs Warehousing and storage costs Financial and General Administration

9. Accounting of Selling and Distribution Overheads The accounting of selling and distribution overheads involve three stage analysis: By nature/object By function/cost centre By product/cost units