Page 179 - DCOM202_COST_ACCOUNTING_I

Unit 8: Overheads

™ z Machine hour rate Notes
™ z Rate per unit of output
z z The overheads are under absorbed if the actual overheads incurred are more than the
overheads absorbed.

z z The overheads are over absorbed if the actual overheads incurred are less than the
overheads absorbed.

8.6 Keywords

Fixed Expenses: Expenses that are not affected by changes in output or sales such as rent, salaries,
etc.

Overheads: Overheads are those indirect costs which cannot be directly related to any product,
job or process, because they cannot be directly attached to production activities.
Semi-variable Expenses: Expenses that change in the same proportion to which output (or sales)
changes but not in the same ratio. Depreciation is not doubled if output is doubled it may be 50%
more. Semi-variable expenses are partly fixed and partly variable.
Variable Expenses: expenses that change in the same proportion in which output (or sales) changes
for example, power consumed, indirect materials, insurance in transit, carriage outwards, etc.

8.7 Review Questions

1. What are overheads? How are they classified? Discuss in detail with a chart.
2. Define fixed, variable and semi-variable expenses giving examples of each.

3. Describe the advantages of classification of factory overheads.
4. Write short notes on the following:
(a) Codification of Overheads, and (b) Collection of Overheads.
5. Classify the Overheads according to Nature, Functions and Variability-wise and explain in
detail.
6. Discuss the various methods of allocating the works overhead charges. Give the relative
merits and demerits of each.

7. Name the different methods of ‘absorption of factory overheads’ and explain any four of
them giving the merits and demerits of each.
8. What is the difference between apportionment of overheads and absorption of
overheads?
9. Discuss the various methods of absorption of factory overheads. Under what conditions, it
is said to be over-absorption of factory overheads?

10. Explain Absorption and Allocation of overheads. What are the main methods? Explain
machine hour rate method.
11. Explain the system and basis of apportionment of factory overheads on machines.

Answers: Self Assessment

1. Overheads 2. Factory Cost

3. indirect material 4. Fixed expenses

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