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Anuj costing and control of administrative, selling
Costing and Control of Administrative, selling and Distribution Overhead<br />Chapter 11<br />Made By: Anuj Nijhon<br />
Administrative Overheads<br />Administrative Overheads are incurred for planning, general management and control of an organization.<br />The administrative overheads include the following cost items:<br />Indirect material: planning stationery used in office, other office supplies<br />Indirect labor: salary allowances of office and administrative staff including board of directors, salary allowances of legal advisor officer and staff<br />Indirect expenses: 1- office rent, rates, and insurance 2- office lighting, heating, and cleaning 3- depreciation and repair of office building, 4- legal charges, 5- bank charges, 6- trade subscriptions and donations 7-miscellaneous office expenses.<br />
Accounting Methods<br />These are three methods of accounting of administrative overheads:<br /> Transfer to cost profit and loss account.<br />Apportionment to manufacturing, selling and distribution divisions.<br />Addition as a separate item of cost<br />
Transfer to Costing Profit and Loss Account<br />According to this method, administrative overheads are treated as period costs to be excluded from product costs for two reasons:<br />They are mainly fixed cost which do not vary with production/sales<br />There is no equitable basis to charge them to other products<br />
Apportionment to manufacturing and selling and distribution divisions<br />This method recognizes only two basic functions of a manufacturing organization namely:<br />Manufacturing<br />Selling and distribution<br />
Addition as a separate item of cost<br />Depending upon the suitability and equitability under the given circumstances, the administrative overhead rate can be computed using one of the following bases:<br />Sales value/quantity<br />Cost of sales/ selling cost<br />Work / manufacturing cost<br />Conversion costs<br />Production units<br />Gross Profit<br />
Selling and Distribution Overheads<br />Selling overheads are costs incurred in selling to existing customers, retaining customers and in promoting sales to potential customers. They consist of following items:<br />Direct selling cost: such cost are incurred for obtaining orders, market research, and supply of goods to customers.<br />Advertising and sales promotion cost<br />Credit and Collection Costs: include expenses relating to collection of receivables and bad debts.<br />Financial and general Administrative cost: included in this category are 1- royalty on sales 2- discounts and allowances 3- sales invoicing 4- accounts<br />
Distribution overheads begins when a order has been obtained, and generally end when goods are to be dispatched. They include the following:<br />Transportation costs<br />Warehousing and storage costs<br />Financial and General Administration<br />
Accounting of Selling and Distribution Overheads<br />The accounting of selling and distribution overheads involve three stage analysis:<br />By nature/object<br />By function/cost centre<br />By product/cost units<br />