Classification of Overhead. The cost of direct material and direct labour is easily classified and allocated to specified cost centre or cost unit.‎What is Overhead? · ‎Importance of Overhead · ‎Classification of Overhead. Types of Overheads - Free download as Powerpoint Presentation .ppt), PDF File DEFINITION OF OVERHEADS On the basis of behavioral classification. Without overheads, we can not operate our business. Still it is not main part of production cost but we can not make the product without.


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What is Overhead? | Meaning | Importance | Classification

If so, classification of overheads may appoint staff specialists for economic operation of production. As a result, the cost of product is reduced. Whenever new methods of production followed and increased the production level, automatically the proportion of overhead cost may be increased. In India, many large companies have established automatic and semi-automatic plants for the purpose of mass production.

Classification of Overheads in Cost Accounting

Hence overheads should be appropriately apportioned to a number of cost units or cost centers, while determining the total cost of classification of overheads products. Classification Of Overheads Overheads can be classified on different basis.


Under this method, overheads are grouped into a Controllable, and b Un-controllable. Variable overheads are controllable as it tends to vary with the volume of output i.

Fixed overheads are treated as un-controllable overheads as these overheads cannot be controlled i. Once again, the key difference lies in the nature of their respective jobs and the physical location in classification of overheads their jobs are carried out.

For example, if a printer has a potential useful life span of 5 years, the amount that it can be sold for will classification of overheads each year.

Classification of Overheads in Cost Accounting | Accounting Education

Moreover, this also applies to vehicles as they tend to depreciate in value significantly after the first year. When calculating manufacturing overheads, accountants mainly use two method s: In addition, property taxes do not change in relation to the business's profits or sales and will likely remain the same unless a change by the government administration.

Therefore, this classification of overheads must be paid to the landlord on a regular basis regardless of the performance of the business. Selling Classification of overheads The selling overhead refers to the cost of selling function ie the cost of activities relating to create and stimulate demand for company products and to secure orders.

Salaries, Commission and traveling expenses of sales representatives and executives, advertising and publicity expenses, samples, printing of price lists, discounts, rebates, bad debts and the like are classification of overheads examples of selling overhead.

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Distribution Overhead The term distribution refers to the activities relating to the sequence of operation starts from making the packed product available for dispatch and ends with making classification of overheads returned empty package available for reuse.

Distribution is also one of the functions like manufacturing, administration and selling.

Running expenses of delivery van, wages of packers, carriage and freight outwards, rent, rates and insurance of warehouses and the like are some of the examples of distribution overhead.

Research and Development Classification of overheads Research overhead is the cost of searching for new products, new techniques for production or finding new equipment.

Overhead (business)

The development overhead is the cost of implementation of research result on commercial basis. Cost of raw materials used for research, salaries and wages of R and D department staff, subscription to classification of overheads and journals, subscription to research association, patent feeds and the like classification of overheads examples of research and development overhead.

Behavior wise classification of overheads The overheads can be classified on behavior wise basis also.

They are presented below: Fixed Overhead Fixed overhead represents indirect cost, which remains constant for a specific period regardless of changes in classification of overheads of production.

Semi-Variable Overheads are those which have both fixed and variable overheads qualities. Such expenses will be fixed at certain level of production after this, these expenses will change according to change in the production.