Archive | Overheads

6 Main Types of Plant Capacity Level | Cost Accounting

The following points highlight the six main types of a plant capacity levels. The types are: 1. Maximum Capacity 2. Practical Operating Capacity 3. Capacity to Make and Sell 4. Actual Capacity 5. Normal Capacity 6. Idle Capacity. Plant Capacity Level: Type # 1. Maximum Capacity: This is the cent per cent rated capacity of […]

Capacity of a Factory | Cost Accounting

The ability of a factory to produce with the present resources and facilities which it commands is called the capacity of a factory. A factory may have a number of machines and in order to run the machines it may require proper equipment’s, buildings, material, labour force, working capital and all other facilities. If the […]

Inclusion of Overheads in Valuation of Stock | Cost Accounting

In this article we will discuss about the arguments for and against inclusion of overheads in valuation of stock. Arguments for Inclusion: 1. Fixed overheads should form a part, of the cost of production as these are incurred during a period in order to manufacture products of that period. 2. Where the fixed costs are […]

Measures to Obviate Idle Capacity in a Factory | Cost Accounting

In this article we will discuss about the measures to obviate idle capacity in a factory. Actions taken to Obviate the Idle Capacity: The action to be taken by the management to obviate the idle capacity depends on the causes leading to it. Some causes such as lack of materials, tools or equipment’s, breakdown of […]

Arguments For and Against the Inclusion of Interest

In this article we will discuss about the Inclusion of Interest:- 1. Arguments For Inclusion of Interest 2. Arguments Against Inclusion of Interest. Arguments For Inclusion of Interest: (i) It is argued that interest on Capital is a reward of the capital invested in the business and should be treated as an element of cost […]

Over-Absorption and Under-Absorption of Overheads

In this article we will discuss about ‘Over-Absorption and Under-Absorption of Overheads’:- 1. Definition of Over-Absorption and Under-Absorption of Overheads 2. Treatment of Over-absorption or Under-absorption in Cost Accounts. Definition of Over-Absorption and Under-Absorption of Overheads: Usually overheads are absorbed on the basis of predetermined rates. Since predetermined overhead rates are based on budgeted overheads […]

Treatment of Items of Expenses: 26 Items | Cost Accountancy

The following points highlight the twenty six items of expenses. Some items are: 1. Design and Drawing Office Costs 2. Materials Carriage, Handling and Storage Expenses 3. Transport Charges 4. Royalties and Patent Fees 5. Light, Heat and Air-conditioning 6. Repairs Renewals and Maintenance 7. Material losses and Wastages 8. Inspection Charges 9. Insurance Costs […]

Apportionment of Overheads | Cost Accountancy

The following points highlight the top two methods of apportionment of overheads. The methods are: 1. Primary Distribution of Overhead 2. Secondary Distribution. Apportionment of Overhead: Method # 1. Primary Distribution of Overhead: Primary distribution involves apportionment or allocation of overhead to all departments in a factory on logical and rational basis. This process of […]

Machine Hour Rate: Definition, Treatment and Advantages

In this article we will discuss about the Machine Hour Rate:- 1. Definition of Machine Hour Rate 2. Treatment of Machine Setting Time and Idle Time 3. Advantages of Machine Hour Rate 4. Disadvantages of Machine Hour Rate 5. Method of Computation of Machine Hour Rate 6. Comprehensive of Composite Machine Hour Rate 7. Setting […]

Absorption of Overheads: Definition, Bases and Methods

In this article we will discuss about the Absorption of Overhead:- 1. Definition Absorption of Overhead 2. Bases of Absorption 3. Method of Absorption of Overheads—Choice of Method. Definition Absorption of Overhead: Overhead absorption is a process by which overheads are included in the total cost of a product. According to Terminology of Cost Accountancy […]

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