Customer Service Chat
Get quote & make Payment
Overheads, Methods of Absorbing Overheads, Classifying the Overheads
Accounting Assignment Help
>> Overheads, Methods of Absorbing Overheads, Classifying the Overheads
In business, an overhead or overhead expense is the outgoing expense of the operating business. The term is used for grouping of expenses which are necessary for the continuing of the business of the enterprise but cannot be directly associated with the products and services which are being produced or offered by the enterprise.
Methods of absorbing overheads
The method which is used for charging overheads to product must ensure that,
1. The total amount being charged or recovered in a given period is not in difference with the actual expenses which are incurred in that specific period, materially. Putting it in simple words, there should be no significant over or under recovery of the overheads.
2. The amount which is charged to individual products and jobs is equitable.
3. Should be convenient to use.
4. Yields uniform results in various periods (to the most possible extent). The changes when occurring should reflect the changes in the underlying situations (for example, substitution of human labor by computer and other machines)
Classifying the overheads
When the activity levels are changed, there is change in the behavioral patterns of overheads also. The expenses can be classified into three categories, when based on this consideration:-
1. Constant or fixed overheads- any variation in activity does not affect these overheads (for example office remuneration). They only vary from one period to another when there is a deliberate change made to them (for example engaging of additional staff).
2. Variable overheads- these overheads change in proportion to the volume of activity. For example, when the activity has a 10% percent hike, the variable overhead expenses also go up by 10% and vice versa. This also makes them constant to per unit of output or activity.
3. Semi variable overhead- these overheads vary when there is a big change in the level of output or activity. Though there ongoing direction is the same as that of changing activity, the two are not in proportion. For example, change of 5% of the activity might result in a 3% change in the overhead expense. Semi-variable overheads can be composed of a fixed term and a variable term. They can be explained as follows:-
The amount of depreciation depends on two factors usually. One is time which is fixed, and the other is wear and tear, which is variable. These two join up to make depreciation on-a-whole as a semi-variable.
Concepts relating to capacity
Rated capacity- it is also known as the installed capacity of the plant or machine and is the maximum production capacity of the plant or machine, as indicated by the manufacturer.
Practical capacity- it is that capacity of the plant or machine which is actually utilized. Also known as the operating capacity, it takes into account the los of time which has occurred because of repairs, minor breakdowns, maintenance, normal delays, idle set-ups etc. It is around 80% to 90% of the related capacity.
Normal capacity- it is also called as average capacity and is used for computing the overhead recovery rates by considering the average utilization of the plant capacity in one full business cycle which often extends for 2 to 3 years. This capacity of the plant of machine is expected to get utilized over a given period of sales expectancy.
Capacity based on sales expectancy- this capacity is based entirely on sales expectancy.
Actual capacity- it is the capacity which is achieved in actual and real terms during a given period of time. It generally lies between the capacity base on sales expectancy and the practical capacity.
Idle capacity- the capacity of plant, equipment or machine which cannot be utilized for production processes in a given period is called idle capacity. The idle capacity is found due to shortage of skilled labor, non-availability of raw material, product demand, seasonal nature of product, shortage of power or supplies etc.
The manufacturing overheads form a major chunk of total overheads. It is very important for a business firm to properly absorb these overheads over the cost of the production. The absorption of manufacturing overheads is done by estimating and collection of cost allocation. After cost apportionment and reapportionment, the absorption of manufacturing overheads is done. The over and under absorbed overheads are then treated for adjustment.
Live Accounting Experts: Overheads and Classifying Overheads Assignment Help, Homework Help
Do you have pending assignments on the topic of overheads? Log on to
for getting solutions of all your assignments, home works and questions answers relating to overheads.
is a trusted website for online tutoring and can provide you the live atmosphere of a classroom in your home itself. We at experts mind are aided by around 4,600 experts who are there to help you 24*7 for all your academic needs. Overheads constitute important accounting topic and must be understood in all its depth for clearing standard
exams. Your assignments will be solved in a manner so that you get an in-depth of knowledge of the subject. These solutions are delivered within the deadline period of your requirement, so you will not lag on your dates of submissions. Our online tutors are highly qualified and are allocated with higher academic and professional degrees. They have also undertaken numerous successful projects and so are richly experienced for solving all your academic queries. Contact us now and give us a chance to exhibit our skills. We can understand the subject better when we discuss the subject and topic, online. The services are provided on very reasonable rates which mean that there is no overstretching of your educational budget. We at Expertsmind.com offers
homework help and projects help from online experts.
Accounting Assignment Help
Economics Assignment Help
Finance Assignment Help
Statistics Assignment Help
Physics Assignment Help
Chemistry Assignment Help
Math Assignment Help
Biology Assignment Help
English Assignment Help
Management Assignment Help
Engineering Assignment Help
Programming Assignment Help
Computer Science Assignment Help
Why Us ?
~24x7 hrs Support
~Quality of Work
~Time on Delivery
~Privacy of Work
Human Resource Management
Literature Review Writing Help
Terms & Conditions
Copyright by ExpertsMind IT Educational Pvt. Ltd.