Chapter 4 - Overheads And Expenses Flashcards
What costs form the overheads of a business ?
Indirect costs
What must all the overhead costs of a business be covered by ?
The revenue from the businesses output
Larger businesses may classify their overheads by ………….?
Function
What are the four most common functions a larger business would classify their overheads under ?
- Factory or production
- Selling and distribution
- Administration
- Finance
What are the four responsibility centres overheads can be allocated to ?
- Cost centres
- Profit centres
- Investement centres
- Revenue centres
What happens to overheads that can not be allocated to one particular cost centre ?
They have to be shared / apportioned between the cost centres that have shared the benefits of the relevamt cost
What is the difference between allocation and apportionment of overheads ?
- Allocation - One particular cost centre
- Apportionment - Spread across multiple cost centres
Why is the overhead absorption rate calculated in advance using estimates ?
It avoids having to calculate the rate regularly
If a companies amount of overheads absorbed is greater than the actual cost of their work the difference is called……..?
- over-absorption
- over-recovery
If a companies amount of overheads absorbed is less than the actual cost of their work the difference is called……..?
- under-absorption
- under-recovery
(over/under)-absorption is the …………. between the total amount of overheads absorbed in a given period and the total amount spent on overheads
Difference
What may happen to the cost of a companies product if the overhead rate is set too high ?
This may set the selling price too high ultimatley effecting the sales of a company
What may happen to the cost of a companies product if the overhead rate is set too low ?
It would reduce profitability as the selling price may have been set too low
