1. F2:Management Accounting

2. 2 Designed to give you knowledge and application of: Section D: Cost accounting techniques D1. Accounting for materials D2. Accounting for labour D3. Accounting for overheads D4. Marginal and absorption costing D5. Job and batch costing D6. Process costing D7. Service/operation costing

3. 3 Learning outcomes D3: Accounting for overheads  Allocate and apportion of production overheads to cost centres using an appropriate basis. [1]  Reapportion service cost centre costs to production cost centres (using the reciprocal method where service cost centres work for each other). [1]  Select, apply and discuss appropriate bases for absorption rates. [2]  Calculate and explain the under and over absorption of overheads. [1]

4. 4 Direct and indirect cost Overheads Non-manufacturing overheads Manufacturing overheads Overheads are all indirect costs Allocated and apportioned to products using suitable bases Include

5. 5 Apportionment of overheads Total overheads Departments A Department B Department C Allocated using accurate base Apportioned using most suitable base Allocation of overheads Assigning overheads on an appropriate basis is important Production or service cost centre Allocation of overheads Refer to Example on page D3.6

6. 6 Total Overheads P S P Individual Product allocated / apportioned re-apportioned allocated / apportioned re-apportioned using absorption rates Stage 1 Stage 2 Reapportion service cost centre costs to production cost centres

7. 7 Overheads absorbed Actual Overheads incurred Under- absorption of overheads < Overheads absorbed Actual Overheads incurred Over- absorption of overheads > Under and over absorption of overheads

8. 8 RECAP  Can you now allocate and apportion production overheads to cost centres?  Can you now use the reciprocal method where service cost centres work for each other?  Can you explain the appropriate bases for absorption rates?  Can you calculate under and over absorption of overheads?

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