Purposes of overhead cost analysis, Cost Accounting

Purposes of Overhead Cost Analysis

There are a number of situations whether the analysis of overhead costs will assist in the satisfactory evaluation of the relevant cost data. These involve:

 

a) The control of overhead expenditures

There should be a link between the manager responsible and overhead cost for its control. This is best achieved via having the planned level of overhead costs for all cost center compared to the real cost incurred in order that any type of differences may be corrective and investigated measures taken.

b) Charging of overheads to cost units

Whether products pass from one cost center to another in the production cycle, then direct costs for labour and material are charged to them. In addition, all job or product should share a part of indirect costs of the business. It may be done via assessing the advantages extracted from each cost center via that the job or product passes and after that choosing a appropriate absorption basis

c) Valuation of work in progress

At any point in this time, there may be partly finished goods in the production cycle. That work in progress should be valued at the end of an accounting period in order such profit be computed and a balance sheet arrived at. It may be achieved via the absorption of production overheads in all cost centers.

d) Valuation of abnormal losses

This is as same as procedure to that for work in progress.  Those losses need also to be charged to the departments such incur them for efficiency analysis reasons.

e) Profit measurement

The valuation of work in development and finished goods stock will affect the profit reported. The basis on that production overhead has been absorbed via cost units will hence have a direct influence on the level of profit reported throughout the period.

f) Decision making

This is vital that relevant costs are utilized in any decision making situation. Production overhead costs may be allocated to a department as cost center or apportioned to it utilizing some arbitrary apportionment basis. In addition the overhead cost might be a variable or fixed behaviour pattern like activity changes.  The net costs associated along with cost centre and the organization like a whole affect the kind of decisions made via the management.  Although such relevant costs require being incremental as making a difference and future costs as not sunk costs such are controllable or like not uncontrollable via management.

Posted Date: 2/5/2013 6:48:59 AM | Location : United States







Related Discussions:- Purposes of overhead cost analysis, Assignment Help, Ask Question on Purposes of overhead cost analysis, Get Answer, Expert's Help, Purposes of overhead cost analysis Discussions

Write discussion on Purposes of overhead cost analysis
Your posts are moderated
Related Questions
Superior Door Company sells pre-hung doors to home builders. The doors are sold for $60 each. Variable costs are $42 per door and fixed costs total $450,000 per year. The company i

Effects of differential cost analysis in decision making

Important Points Regarding to the Variance Analysis Variance reporting concentrates on both with favourable and unfavourable variances. Normally unfavourable variances are pun

Using  the  information below, list profit statements  for June and July using  (a) margin costing and (b) absorption costing. A company produces and sells 1 product only which

Shubenacadie Inc. is currently considering a project with a 5-year life that it believes has the potential to return the company to profitability. Based on the results from a marke

Johnson Farms owns valuable farm land that permits it to make wheat at a lower cost than its competitors. The company reports large profits every year on its accounting statements.

Objectives of Budgetary Planning 1) Coordination The budgetary process needs that visible detailed budgets are developed to cover every activity, function or department

Portions of the financial statements for Hawkeye Company are provided below. HAWKEYE COMPANY Income Statement For the Year Ended December 31, 2013 Sales $ 850 Cost of goods sold (3

The Gladys Corporation buys office equipment costing $426,000 on May 12, 2013. In 2015, new and improved models of the equipment make it obsolete, and Gladys sells the old equipme

DIFERENCE BETWEEN MARGINAL AND DIFFERENTIAL COSTING