Page 57 - BA2 Integrated Workbook - Student 2017
P. 57
Overhead analysis
What are overheads?
Overheads (also referred to as indirect costs) comprise indirect
material, indirect labour and indirect expenses.
An overhead cost is defined in the CIMA Terminology as ‘expenditure
on labour, materials or services that cannot be economically identified
with a specific saleable cost unit’.
1.1 Types of overhead
Overhead costs may be classified according to the function within the organisation
responsible for incurring the cost. Examples of overhead cost classifications include
production overhead concerned with the physical production of the product
selling and distribution overhead concerned with the selling and distribution
of the finished product
administration overhead concerned with the general administration of the
organisation.
It is usually possible to classify the majority of overhead costs in this way, but some
overhead costs relate to the organisation generally and may be referred to as
general overhead.
1.2 Production overhead
The production function is usually divided into a number of departments or cost
centres. Some of these cost centres are directly involved with the production
process. These are called production cost centres.
Other cost centres which are part of the production department are not directly
involved with the production process but provide support services for the production
cost centres. These are called service cost centres.
49
