overheads are three indirect elements of cost. The three elements being-i ndirect material, indirect labour and indirect expenses. these indirect elements of cost have no bearing whatsoev
er with the level of activity or volume of production. Examples of these indirect elements are- in making shirts. buttons and thread will be indirect material, rent of the factory will be indirect expenses and salary of the storekeeper will be indirect labour these three would be collectively called overheads.
The items which are included in direct overheads are the ones which are directly related to production process like salaries of machine operators and buying raw materials. The ones that are included in indirect overheads do not relate to production like giving to charity among others.
Variable overhead cost variance is that variance which is in variable overheads costs between the standard cost and the actual variable cost WHILE fixed overheads cost variance is variance between standard fixed overhead cost and actual fixed overhead cost.
marginal costing considers only direct) materials,labour,expenses and variable factory overheads excluding fixed factory overheads but absorption considers (direct) materials ,labour,expenses,variable and fixed factory overheads.
In traditional costing, overheads are allocated using blanket rate while in activity based costing overheads are allocated by the activities performed.
A fixed overhead will remain the same regardless of production levels while a variable overhead will change in relation to production levels. Controlling Overheads will reduce per unit costs thereby increasing contribution margin.
Non production overheads are costs associated with the workings of a company. These costs do not go directly into making the item. For example, electricity or office space are non production overheads.
The items which are included in direct overheads are the ones which are directly related to production process like salaries of machine operators and buying raw materials. The ones that are included in indirect overheads do not relate to production like giving to charity among others.
Variable overhead cost variance is that variance which is in variable overheads costs between the standard cost and the actual variable cost WHILE fixed overheads cost variance is variance between standard fixed overhead cost and actual fixed overhead cost.
yes.
Over or Under AbsorptionNote that as long as planned level of activity and the actual level of activity is not the same there is always an Over or Under Absorption situationThis is because overhead absorption rate is set at the start of the period based upon an expected level of production and that during the period, the level of output and or overheads will be different from the planned overheads and or output.OVER-absorption occurs when the total overhead recovered or absorbed is GREATER than the actual level of overheads for the period.UNDER-absorption occurs when the total overheads recovered or absorbed is LESS than the actual overheads incurred in the period.
Low overheads and diversity of products
marginal costing considers only direct) materials,labour,expenses and variable factory overheads excluding fixed factory overheads but absorption considers (direct) materials ,labour,expenses,variable and fixed factory overheads.
Over or Under AbsorptionNote that as long as planned level of activity and the actual level of activity is not the same there is always an Over or Under Absorption situationThis is because overhead absorption rate is set at the start of the period based upon an expected level of production and that during the period, the level of output and or overheads will be different from the planned overheads and or output.OVER-absorption occurs when the total overhead recovered or absorbed is GREATER than the actual level of overheads for the period.UNDER-absorption occurs when the total overheads recovered or absorbed is LESS than the actual overheads incurred in the period.
materials, labour and overheads
It is the wholesale price plus a share of the overheads.
In traditional costing, overheads are allocated using blanket rate while in activity based costing overheads are allocated by the activities performed.
Following is the formula for total costtotal cost = fixed overheads + variable overheads + direct labor + direct material