Overhead Analysis

Question 1

What does allocation and apportionment focus on?

Answer 1

The costs of a business can either be classified as Direct or Indirect. Allocation and apportionment focuses on the indirect costs of the business.

Question 2

What are Indirect Costs?

Answer 2

Indirect costs are not directly linked to the manufacturing process, but are incurred by other processes which are necessary to enable the production process to be carried out. These expenses are classified as overheads.

Question 3

What is Overhead Analysis?

Answer 3

Overhead analysis is the process hereby an amount for each overhead is included in the total cost of the product.

Question 4

What is Cost Centre?

Answer 4

This refers to any part of a business where production takes place and to which costs can be charged eg department, item of equipment, machine or person. Cost centre are used to collect overheads for charging on to products which used the cost centre.

Question 5

What are some examples of Cost Centre?

Answer 5

• Machine shop
• Assembly Area
• Paint Shop
• Finishing Dept
• Quality Control
• Canteen.

Question 6

What can these cost centres be classified as?

Answer 6

• Production cost centre
• Process cost centre
• Service cost centre

Question 7

What is a production cost centre and process cost centre?

Answer 7

A production cost centre and process cost centre is a department where production takes place resulting in a product which may be completely finished and ready to sale or a product which requires to be further processed before it is ready for sale.

Question 8

What is service cost centre?

Answer 8

A service cost centre is a department which provides a service to the production areas of the factory. Without the existence of this cost centre the production cost centre would find it difficult to manufacture the goods. Examples of service cost centres are maintenance depts, HR depts and canteen depts.

Question 9

What is Cost Unit?

Answer 9

A cost unit is the product, service or time period which finally absorbs all costs including overheads from cost centres.

Question 10

What are examples of Cost units?

Answer 10

• Tyre
• Canteen meal
• Tin of beans
• Tonne-mile

Question 11

What are the 2 main objectives when carrying out overhead analysis?

Answer 11

• To enable cost control
• To ascertain products/job costs

Question 12

What are the 3 stages these objectives can be carried out?

Answer 12

• Allocation of overheads
• Apportionment of overheads
• Absorption of overheads

Question 13

Stage 1: what is