Overhead Analysis

Question 1

Why are some overheads allocated and others apportioned?

Answer 1

Costs are allocated when overheads can be easily identified and traced to a specific department.

Costs are apportioned when the cost relates to the business as a whole, rather than individual departments.

Question 2

What are direct costs?

Answer 2

These are costs involved in the actual making of a product e.g. direct materials, direct labour and direct expenses.

Question 3

What are indirect costs?

Answer 3

These are overheads which are costs not involved in the actual making of the product but are involved in the running of the business and without which the product would not be made e.g. rent and insurance.

Question 4

What are some examples of recovery rates?

Answer 4

Rate per machine hour

Rate per labour hour

Percentage of direct materials