overhead analysis

Question 1

Cost unit

Answer 1

The actual product being made

Question 2

Cost centre

Answer 2

An area of responsibility where costs can be changed

Question 3

Prime cost

Answer 3

This is the total of direct materials, direct labour and other direct expenses used to make a product

Question 4

Overheads

Answer 4

These are indirect costs which are not easily identifiable in the product being made but without these costs the product could not be made e.g. rent and rates, electricity, heating and light, insurance, cleaning

Question 5

Cost allocation

Answer 5

Cost allocation refers to the situation where whole items of overhead costs can be allocated or charhes to a particular cost centre

Question 6

Cost apportionment

Answer 6

Where an overhead cannot be directly allocated or charged to one particular cost centre or department the overhead will be shared between each cost centre or department

Question 7

Cost absorption

Answer 7

Once all overheads have been charged to cost centres a total overhead cost for the business or factory can be determined. The next stage is to charge each product being made with a small proportion of the total overheads

Question 8

Methods of overhead apportionment

Answer 8

number of employees
floor area
value of fixed assets
power