costing for overheads

Question 1

What must I learn about costing for overheads?

Answer 1

RAI
R - Record cost info for overheads - organisation costing procedures
A- analyse cost info for overheads
I - identify the correct costs accounting journals for overheads

Question 2

How do you ensure that expenses are entered into the appropriate ledger? P86

Answer 2

• classified:
• capital expenses
• revenue expenses

Question 3

What can revenue expenses then be split into? P86

Answer 3

Direct and indirect expenses
fixed and variable costs

Question 4

What is capital expenses ?

Answer 4

non current asset costs - longer than a year

Question 5

What can capital expense be?

Answer 5

• Tangible - physical touch
• intangible - goodwll

Question 6

How is the costs of non current asset spread & what classification is this ? P87

Answer 6

• Depreciation
• Revenue expenditure

Question 7

What are revenue expenses ? P87

Answer 7

• Short life
• within one financial year - day to day running

Question 8

Why are few expenses direct ? 87

Answer 8

• economical to ascertain costs
• e.g. call centres - call made / calls for other reasons & line rental

Question 9

What is the straight line method of depreciation? P88

Answer 9

• equal amount - each accounting period / useful economic life

Question 10

What is the formula for straight line method depreciation? P88

Answer 10

original costs - estimated residual value / useful economic life

Question 11

How would a company calculate the monthly depreciation charge , if they use the straight line method ? P89

Answer 11

Depreciation charge / 12 months

Question 12

What is the reducing balance method? P89

Answer 12

• fixed percantage
• net book value
• start of accounting period

Question 13

What does the reducing balance method of depreciation take into account? P89

Answer 13

• some assets: greater proportion of economic value - consumed in early years of economic life

Question 14

What are reasons for use of the reducing balance method ? P89

Answer 14

• wear and tear
• less capable
• less technologically advanced

Question 15

What is the machine hour method depreciation? P90

Answer 15

charge for usuage = terms of actual usuage

Question 16

What is the machine hour depreciation based on ? P90

Answer 16

• Expect number of hours - machine is operating / expected economic life

Question 17

What is the formula for the machine hour method depreciation? P91

Answer 17

original cost - estimated residual value / estimated hours of use

Question 18

When bookkeeping for expenses how is the overheads costing system linked to the accounting system ?

Answer 18

• overhead costs > product costs - sett;ong selling prices
• actual costs - statement of profit/ loss

Question 19

What is the key difference between bookkeeping for materials & labour in comparison to bookkeeping for expenses ?

Answer 19

• Not one control account
• Number of different expense accounts
• e.g. rent and rates, insurance, and motor expenses

Question 20

Where would direct expenses be charged to when bookeeping for expenses ? - P92

Answer 20

Work in progress account

Question 21

Where would indirect expenses be charged to when bookkeeping for expenses? - P91

Answer 21

• production overheads
• / non production overheads

Question 22

What can non-production overheads be further divided into ? P92

Answer 22

• Selling and distributon
• administration
• finance

Question 23

What is the double entry for direct expenses ? - P92

Answer 23

work in progress
debit: work in progress
credit: expense account

Question 24

What is double entry for indirect expenses relating to production ?

Answer 24

debit: productions overheads
credit: expense account

Question 25

What is the double entry for indirect overheads relating to non production overheads?

Answer 25

• dr non production overheads accounts ( selling and distribution, finance, and administration)

*Cr : expense account

Question 26

What are direct expenses included in, and what does this form part of ? - P92

Answer 26

• direct materials
• direct labour
• prime costs of product/ service

Question 27

What are the indirect expenses included in, and what does this form part of ? P92

Answer 27

• Indirect materials
• indirect labour
• total costs of overheads