Manufacturing Overheads:
Generally manufacturing overheads form a substantial portion of the total overheads. It is important, that such overheads should be properly absorbed over the cost of production. The following procedure may be adopted in this regard. The steps given below shows how factory overhead rates are estimated and overheads absorbed on that basis and the last one shows how actual are compared with the absorbed amount.
1. Estimation and collection of manufacturing overheads : The first stage is to es- timate the amount of overheads, keeping in view the past figures and adjusting them for known future changes. The sources available for the collection of factory overheads may include(a) Invoices, (b) Stores requisition, (c) Wage analysis book (d) Journal en- tries. etc.
2. Assignment of Manufacturing Overheads : The guiding principle for assignment of manufacturing overheads to a cost object is the traceability of the overheads in an economically feasible manner.
1. Estimation and collection of manufacturing overheads : The first stage is to es- timate the amount of overheads, keeping in view the past figures and adjusting them for known future changes. The sources available for the collection of factory overheads may include(a) Invoices, (b) Stores requisition, (c) Wage analysis book (d) Journal en- tries. etc.
2. Assignment of Manufacturing Overheads : The guiding principle for assignment of manufacturing overheads to a cost object is the traceability of the overheads in an economically feasible manner.
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