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Overhead Accounting

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

1st Step : Collection of Different Overhead Expenses

All overhead expenses can not be collected from one source. There are following different main sources from where we collect production overheads for adding it in overhead account.

a) Store : Store is place where we keep our raw material. If it is the nature of indirect material, then from the information of order nos and its receipts of issue, we collect all indirect material consumption as production overheads.

b) Wages analysis book : With wage analysis book, we can collect all indirect labour cost and add in overhead account.

c) Invoices of other indirect expenses : For cash book and other invoices investigation, we collect other indirect expenses and add it in  overhead account.

2nd Step : Departmentalisation of overhead

We effective control on factory, we divide it in departments and cost centers. There may be repair department, power department, tool department and many more. We try to departmentalize of overheads according to nature of expenses.

3rd Step : Allocation and Apportionment of overhead expenses

For proper accounting of overhead, we need to allocate and apportionment of overhead expenses

a) Allocation of overhead expenses

If any overhead expense is related to any particular department, it is easy to allocate to that department or cost center. Suppose, we have given overtime salary to a particular department. We can allocate it to that specific department. In future, for reducing, it we can do more control on that specific department.

b) Apportionment of overhead expenses

If there is an overhead which is not allocated in specific department, we apportionment of that overhead. Suppose, rent for plant which is used by two departments. So, two know whether two department are using that plant effective way, we have to apportionment of overheads on specific basis. In this example, we can calculate rent of particular department by calculating the area of each department. Suppose, if A department is using 70% area, then it means 70% of rent is relating to A department and rest 30% of rent relating to B department.

 Basis of apportionment of overhead expenses may be direct labour hours, nos. of labours, capital values, machine hours, light points, k.w. hours, and other technical estimations.

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Accounting Education: Overhead Accounting
Overhead Accounting
Accounting Education
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