Overhead is basically the cost pertaining towards a specific cost unit or a accost center which may be divided into two equivalent parts, which is indirect and direct. The indirect part of the total cost which is constituting the main overhead cost is actually the aggregate of the material cost which is indirect. It is also in relation to the indirect expenses as well as the indirect wages. The CIMA has a definition for the overhead, which is, indirect cost is as similar as the expenditure on the labor, services and on the materials. They cannot be particularly identified as per a specific saleable cost of the product per single unit. The indirect costs refers to the costs incurred for the simplification of a large number of cost units or the cost centers. As seen before, these indirect costs can never be correlated with a particular cost unit or a cost center but due to its dynamic nature, it can be portioned off by the various cost units and cost centers as per the requirements. In simpler words, overhead is basically the expenditure which went over and above the expected prime cost of any good or service produced. Overhead is a vast term which comprises all of the main expenditures incurred by the business firms for the operations an also of the part of the undertaking that is the cost of operating supplies which is redeemed by the undertaking as per the needs. It is used by the undertaking for the purpose of maintaining the major capital assets. Overhead is a larger term than its sense, hence it can also be called as the indirect expenses, supplementary costs, on costs and point costs.
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The national economy sets up the five year plans for the country. This five year plan is made up with the sole purpose of betterment of the national economy. To improve the lives of the citizens. In this five year plans, the industry sector is given a prominent part and due importance. As a result, the industrial sector have been increasing at a high rate ever since. A large number of establishments are being made up both in the private sectors as well as the public sectors. It is primarily used for the mass production of goods and services and hence as a result, improvised and costlier mode of machinery are being used now and have become an absolute necessity. Due to this, heavy expenditure are being incurred by the firms which cannot be duly charged directly to any specific single unit. It is therefore called the cost common to all the units of production. Due to this sudden high demand of such high end machineries, the overhead expenses became a significant proportion of the overall total cost which is incurred by a business in its operation. It requires proper analysis for the purpose of cost ascertainment and also for the control by the differentiated function. It is also used for the guidance for some of the particular managerial decisions to the long extent of the production as well as the variability. Another aspect of the overhead costs is that it cannot be allocated but is made exceptional with suitably absorbed by the suitable methods. All the work related to the overhead expenses is done by the cost accountant and is required to pay high attention directly to the overhead cost accounting which is a prudence choice of the other different bases. It is used mainly for the absorbing of the overheads in the cost of products.
Cost classification is basically the process of merging and grouping of different costs as per their common characteristics, which later helps in identifying them. It is the detailed process of classification of the costs which are written in the accounting books and is eventually very important to follow up in order to mainly identify the main cost of the goods or services produced with the cost units and cost centers. The costs are classified and differentiated as per various elements such s their nature, material, expenses, raw materials used to make up and labor. A number of characteristics are also used to classify them. It is same with the cost figures which are classified as per the different ways of incurring costs which depends upon the sole purpose which is to be achieved is to have profit maximization and also for the requirements for a particular concern. There are two steps in this
The main method which is to be adopted for the sole purpose of classification of the overhead costs depends upon the type as well as the size of the nature of the product or service which is being produced by the business in a period of time, the policy of the management and the size of the business enterprise. There are various parameters on which the classification is done,
Each and every group from this is re grouped into the element which is related directly to the indirect labor, indirect material and the indirect expenses which is specified under the each element which it presents. The expenses which is further subdivided into other categories according to the need and want of the business factors which are repairs, maintenance, salary and depreciation.
Fixed overhead cost is basically the cost which is incurred in relation to the nature of the expense to the long passage of time and which is according to the certain limitations which usually tends to be the unaffected causes and by the fluctuation in the activity level of the business operations. These fixed overhead costs remain fixed with time and total amount having the increase or the decrease in the volume of the output and the high and low of the productivity production in a specific period of time. Some examples of fixed overhead costs are, machineries, building, furniture, labor, etc.
On the other hand, variable overhead cost is the cost which tends to remain stable and rigid for only a shorter period of time and as per the level of activity. The total in variable overhead costs may vary in total direct proportion as to the relation of the total volume output. These costs per unit remain relatively constant with changes in production. Some of the examples of this are, indirect labor, indirect material, tool, defective work loss, idle time, heating expenses, commission to salesman and the lubricant charges.
Overhead analysis is a subject of great importance in the cost accounting part of accounting. Owing to the matter of the classifications d the nature of the subject, there are many other things in the overheads subject which get the students all confused an full of doubts. For this, we are available here. We will help in doing the projects and assignments and even homework on this topic for you. Our tutors which we assign are experts who will give the best work to you having 100% plagiarism free work and completion of the assignments and projects within the deadline. We will assure you very good grades in this subject in your curriculum an also the final results. Contact us on our helpline number or visit our assignmenthelp.net. We are just a call away to help.
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