Overhead Analysis

Question 1

Overhead Costs

Answer 1

Indirect costs

i.e. production overhead
Selling and distribution overhead

Question 2

Total Cost Formula

Answer 2

Directs costs + overheads

Question 3

Absorption Costing Process

Answer 3

1 Allocation and apportionment
2 Reapportionment
3 Absorption using OAR

Question 4

Cost Allocation

Answer 4

is possible when we can identify a cost as specifically attributable to a cost centre

Question 5

Cost Apportionment

Answer 5

is necessary when it is not possible to allocate costs to a specific cost centre

i.e. rent based on floor space
electricity on machine hours

Question 6

Overhead Absorption Rate OAR

Answer 6

Cost centre overhead
/
Qty of absorption base
(units/ labour hours/ machine hours)

Question 7

Overhead Cost Absorbed Formula

Answer 7

budgeted OAR
X
actual hours

Question 8

Reciprocal Servicing

Answer 8

Repeated Distribution Method

Question 9

Marginal Cost Pricing

Answer 9

variable costs only

used for one offs

Question 10

Profit Mark Up

Answer 10

Calculated as a percentage of costs

known as cost plus

Question 11

Profit Margin

Answer 11

Percentage return on sales

total cost x (req’d margin / (1-req’d margin)
or
total cost x (1-req’d margin)