Chapter 6 Overheads Flashcards
What are Expenses?
Costs occurred by a business that does not include Materials or Labour. Direct expense can be traced back to an individual unit whereas indirect expenses cannot be.
What are Production Overheads?
They are indirect costs that are due to production activity, for example rent, electricity.
What are Non-Production Overheads?
They are costs incurred due to running a business, for example: Admin costs, selling costs, legal fees.
What is Allocation?
When an overhead can be entirely related to one production/ service centre.
What is Apportionment?
When an overhead relates to multiple production/ service centres and the cost is shared amongst these centres.
What is Re-Apportionment?
Apportioning a service cost centre (a department other people use such as IT or canteen or maintenance) costs to the centres who use them eg. Assembly or finishing.
What is the difference between Direct Re-Apportionment and Step-Down Re-Apportionment?
Direct only apportions against production centres whereas Step-Down apportions against everyone who uses the services then that figure can be reapportioned to the people who use the service who use the service. Therefore Step Down is more accurate.
What is Absorption?
Taking final cost of a cost centre and dividing it by units produced to get a overhead cost per unit.
What is a cost driver?
Something that causes a cost to be occurred
What is a Cost Pool?
A group of similar costs that are put together. (Have the same cost driver)
