Page 168 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes (ii) Alphabets Method: The alphabet stands for the head of expense and the number shows
further analysis of the expense. For example, “M” stands for Maintenance and it can be
analysed as follows:
M = Maintenance
M = Maintenance to Factory Building
1
M = Maintenance to power House
2
M = Maintenance to Officer Building
3
M = Maintenance to Warehouse Building
4
(iii) Numerical Codes Method: For mechanized accounting, the use of alphabets is restricted
and this numerical code method is, adopted in the industry. For example:
Code particulars
100101 Depreciation on plant
100102 Depreciation on Building

200101 Salary to Factory Manager
200102 Salary to Managerial
The main sources of collection of overheads are:
(i) Store Requisition: Store requisition prepared for the issue of indirect materials like
cotton waste, lubricants, brushes, soap, etc., are helpful in collecting and ascertaining the
overheads to be charged to the department which made use of such indirect material, etc.
(ii) Wages Analysis Book: This book gives information regarding indirect wages, overtime
payment, etc., to be treated as overhead. The indirect wages paid to various employees are
recorded in this book on the basis of time card.
(iii) Purchases Journal and Invoices: The purchase Journal give information regarding the
indirect materials and stores purchased. Invoices for materials are entered in the material
control accounts and the invoices for stores purchases are recorded in the stores control
accounts. The various invoices supporting the purchase of indirect materials by various
departmental heads are entered in purchase journal meant for the purpose of collection of
overheads.
(iv) Cash Book: All expenses incurred in cash may be collected from cash book. So, such
overheads are paid in cash and not entered in any other books. And overheads can be
collected from cash book. Sundry item of expenses are recorded in a petty cash book. The
total of indirect expenses or overheads is collected from the petty cash book on the basis of
standing order number and cost accounting number.
(v) Journal: This book gives information regarding the payments made in advance, besides
depreciation, interest, notional rent and adjustments, etc. The total of these expenses are
posted to the debit of factory overhead control account and credited to cost control ledger
account.

(vi) Vouchers: Vouchers regarding indirect expenses give information of total overhead costs.
(vii) Various Registers and Reports: Information about depreciation can be had from the plant
and machinery register. Reports regarding scrap, waste, spoiled material, idle time, idle
machines and idle facilities, etc. are helpful in collecting the overheads.

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