1. ACCOUNTING FOR OVERHEADS
BY- Dr. Kamlesh Khosla
M.com, M.A.(Eco.), PH.D
PG Diploma in PMIR &
PG Diploma in Journalism and Mass Communication

2. INTRODUCTION
Accounting of Overheads is one of the most important & technical aspect of Cost accounting. From Cost reduction & Cost control point of view, overhead play a great role. So, proper understanding of computation and accounting of overhead is must for Students of commerce.

3. Meaning of OVERHEADS???
Overheads is the aggregate of indirect materials cost, indirect labour cost and indirect expenses which cannot be conveniently identified with and directly allocated to a particular cost centre or cost object.
Example- Indirect Material Cost
Indirect Labour Cost
Indirect Expenses

4. Distribution Of Overheads
Step 1 -> Classification of Overheads Step 2 -> Collection of Overheads Step 3 -> Allocation of Overheads Step 4 -> Apportionment of Overheads Step 5 -> Re-apportionment of service department overheads Step 6 -> Absorption of Overheads

5. Classification Of Overheads
By Function
Production Overheads
Administrative Overheads
Selling Overheads
Distribution Overheads
By Behaviour
Fixed Overheads
Variable Overheads
By Element
Indirect Materials
Indirect Labour
Indirect Expenses

6. Collection of Overheads
Collection of overheads means the collection of various items of overheads under suitable account heading and a unique Standing Order Number(S.O.N.) or Cost Account Number(C.A.N.).
Sources -> Material Requisitions
-> Wages analysis Book
-> Invoices
-> Cost Journal
-> Subsidiary Records

7. Allocation Of Overheads
ITEMS OF OVERHEADS ALLOCATED
PRODUCTION DEPARTMENTS
SERVICE DEPARTMENTS P1 P2 S1 S2
Direct Materials -
Direct Wages
Direct Expenses
Direct Material
Indirect Wages
TOTAL OVERHEADS ALLOCATED
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8. Apportionment of overheads
It is the process of charging the proportion of common items of cost to two or more cost centres on some equitable basis.
PRINCIPLES FOR APPORTIONMENT OF OVERHEADS
Actual Benefit
Potential Benefit
Ability to pay
Specific Criteria/Survey method

9. Basis Of Apportionment
COMMON ITEMS OF PRODUCTION OVERHEADS
BASIS OF APPORTIONMENT
Factory rent, rates & taxes
Insurance of factory building
Floor area occupied
Insurance of Plant & Machinery
Depreciation of Plant & Machinery
Capital Cost of Plant & Machinery
(a) Insurance of Stock
Insured Value of stock
Supervision
Canteen Staff Welfare Expenses
No. of workers
Compensation to Workers
PF Contribution
Wages
(a) Stores Overheads/keeping expenses
Value of direct materials
(a) Material Handling Charges
Weight of direct Materials
(a) Lighting & Heating
No. of light points or floor area occupied

10. Secondary Distribution Of Overheads
It means the apportionment of overheads of service departments among the production departments on some suitable basis.
METHODS
On Non Reciprocal Basis/Step ladder method
On Reciprocal Basis-
Simultaneous Equation Method
Repeated Distribution Method
Trial & Error Method

11. Methods Of Absorption Of Overheads
Overhead Absorption Rate =
Total overheads of cost centre/ Total Quantum of base
METHODS
Percentage Of Direct Material Cost
Percentage of Direct Labour Cost
Percentage of Prime Cost
Direct Labour Cost
Machine Hour Rate
Rate Per Unit Of Production

12. Percentage of Direct Material Cost
Factory Overhead Rate = Amount of Production overheads/ Direct Cost Material x 100
Percentage Of Direct Labour Cost
Factory Overhead Rate = Amount Of Production Overheads/ Direct Labour Cost x 100
Percentage Of Prime Cost Method
Factory Overhead Rate = Amount Of Production Overheads/ Prime Cost x 100

13. Direct Labour Hour Rate
Factory Overhead Rate = Amount Of Production Overheads/ Direct Labour Hours
Machine Hour Rate
Factory Overhead Rate = Amount of Production Overheads/ Machine Hours
Rate Per Unit Of Production
Factory Overhead Rate = Amount Of Production Overheads/ No. of Units of Production

14. Computation Of Machine Hour Rate
Fixed/ Standing Charges
TOTAL PER MACHINE (Rs)
TOTAL PER HOUR(Rs)
(a)Rent & Rates
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(b) Heating & Lighting
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(c) Supervision
(d) Insurance
(e) Lubricating oil & Consumable Stores
(f) Sundry Shop Supplies
(g) Department & General Overheads
TOTAL FIXED CHARGES
STANDING CHARGES PER HOUR*
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15. III. Machine hour rate II. MACHINE EXPENSES PER HOUR PER HOUR
Depreciation
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(b) Repair & Maintenance
(c) Power
(d) Other Running Expenses
III. Machine hour rate
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16. THANK YOU !!!