Page 167 - DCOM202_COST_ACCOUNTING_I

Unit 8: Overheads

(b) Uncontrollable Overhead: The overhead costs which are beyond the control of Notes
managerial decisions are uncontrollable costs. All fixed overhead costs fall under
this category.
(v) Normality-wise Classification: On the basis of normality, overheads may be classified into
two categories. They are:
(a) Normal Overheads: Normal overheads refer to such overheads which are expected to
be incurred in attaining a given output. These overheads are unavoidable. They are,
therefore, included in production costs.
(b) Abnormal Overheads: They refer to those overhead costs which are not expected to be
incurred in attaining a given output, e.g. cost of abnormal idle time. Such costs are
charged to costing profit and loss account.

8.3 Codification of Overheads

Coding is a technique and method of intelligently describing in numbers or letters or a combination
of overheads. Codification of overheads is useful in control of overheads. After the classification
of overheads, the next step involved in cost accounting is to codify them.

Objectives of Codification of Overhead

The main objectives of codification of overheads are:

(i) To analyse overhead expenses for control purposes,
(ii) To account for all types of overheads,
(iii) To help the task of machine accounting system,
(iv) To facilitate control over them,
(v) To reduce the task of maintaining a huge number of accounts, and

(vi) To accumulate overheads systematically.

Methods of Codification

The overheads are collected from the different sources; they are grouped under different similar
headings. It means that the overheads of similar nature and feature are placed under one group.
Codification is the method of grouping of overheads by allotting various numbers, alphabets or
other symbols to the overheads.
Codification is associated with the use of standing order numbers and cost account numbers. The
numbers are provided to items of the overheads. Allotted numbers prove helpful in maintaining
secrecy with simplification. There are three methods of codification as given below:
(i) Serial Number Method: Each head of expense is given a serial number.

S.No. 1 Material
S.No. 1.1 Direct Material
S.No. 1.2 Indirect Material
S.No. 2 Factory Overheads

S.No. 2.1 Rent on Factory Building
S.No. 2.2 Salary to Factory Manager

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