Page 169 - DCOM202_COST_ACCOUNTING_I

Unit 8: Overheads

8.4 Overhead Accounting Notes

Overhead accounting is the concept of cost accounting. In overhead accounting, we collects
all overhead, then we classify it. Then we do its departmentalization. In end, we allocate and
apportionment of overhead expenses.

departmentalisation of Overhead

Departmentalisation of overhead refers to the process of administratively dividing the factory
into different divisions or cost centre to which overheads are charged. Departmentalisation of
overhead is considered necessary for ensuring greater accuracy in cost ascertainment and cost
control. The departmental organization of a large manufacturing concern usually consists of
production departments and service departments.

production department are those in which manual and machine operations are performed on
the products produced. The number of production departments in a industry depends upon
the nature of industry and they type of production operations involved. For example, a cement
industry usually has the following departments:
(a) Stone Crushing Department,
(b) Raw Grinding and Mixing Department,
(c) Coal Crushing and pulverizing Department,

(d) Burning and Cooling Department,
(e) Finish, Grinding and Storing Department, etc.

Did u know? Division of overhead among different functional departments enables
management to exercise greater control over overhead by fixing the responsibility for the
incurrence of the related overhead expenses.

Thus, the indirect expenses relating to each production process undertaken by a distinguished
department are collected under separate accounting heads classified on the basis of object of
expenditure.
Service departments are those which are not directly engaged in manufacturing but render special
type of services for the benefit of other departments. Depending upon the nature of industry and
the type of services required, a large organization may have the following service departments:
(a) planning and Estimating Department,
(b) Stores Department,
(c) Repairs and Maintenance Department,

(d) plant Engineering Department,
(e) Inspection Department,
(f) purchasing Department,
(g) Cost Accounting Department,
(h) personnel Department,
(i) pay-roll Department, and

(j) General Accounting Department, etc.

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