overhead analysis

Question 1

what are direct costs

Answer 1

direct costs are costs directly involved in the making of a product e.g direct materials or labour

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 (overheads)

Question 3

what is a cost centre?

Answer 3

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

Question 4

name 2 objectives of carrying out overhead analysis

Answer 4

• to enable cost control
• to ascertain product/ job costs.

Question 5

example of base

Answer 5

area, no. of employees, kilowatt hours, value of machinery

Question 6

example of methods of overhead absorption

Answer 6

based on labour hours
based on direct machine hours
based on percentage of direct materials
based on percentage of prime cost

Question 7

what does it mean if overheads are over absorbed

Answer 7

If our total overheads charged for the year is higher than the actual overheads for the year then we have over absorbed by the difference

Question 8

what does it mean if overheads are under absorbed

Answer 8

If our total overheads charged for the year is lower than the actual overheads turn out to be for the year then we have under absorbed by the differenct