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Accounting For Overhead
Accounting For Overhead
Accounting For Overhead
Thilanka Warnakulasooriya
B.Com Special, FCA, MBA-Fin
Accounting for Overhead
Overhead
General OH
Overhead Allocation, apportionment & absorption
Steps.
i.e. Cutting supervisor salary directly identified to the cutting cost center
Rent, rates, heating and light, Floor area occupied by each cost
repairs and depreciation of centre
building
Deprecation and insurance of Cost or book value of equipment
equipment
i.e. Garment factory monthly electricity bill was Rs. 200,000. Factory consist of 4 cost
centers . The floor area occupied by each cost center are as follows.
Simultaneous Equation
Method
Only to
Repeated Distribution Production
Method Department
Ex 04
11
Over and under absorption of
overheads
The rate of overhead absorption is based on estimates ( of both
numerator and denominator) and it is quite likely that either one or
both of the estimates will nit agree with what actually occurs
12
The reasons for over/under absorbed overheads
The overhead absorption rate is predetermined from budget
estimates of overhead cost and the expected volume of activity.
Over or under recovery of overhead will occur in the following
circumstances:-
◦ Actual overhead costs are different from budgeted overhead
◦ The actual activity level is different from the budgeted activity
level
◦ Actual overhead costs and actual activity level differ from the
budgeted costs and levels