Collection of Overhead or Factory Overhead
Table of Contents
Collection of Overhead or Factory Overhead
The collection of overhead is the process of recording each item of cost in the book of accounts maintained for the purpose of ascertainment of cost of each cost centre or cost unit. The items of overhead may be collected from the following documents.
1. Stores Requisitions
A cost unit or cost centre, which receives indirect materials from the stores by submitting stores requisition form. This form contains the details like standing order number, quantity of materials, the department which uses the indirect materials and the like. The material issue analysis sheet is prepared at the end of each month to know the value of indirect materials used for a specific period.
2. Time or Job Card
Indirect wages payable by each department are collected from the time or job card. At the end of specific period, time or job card analysis sheet is prepared to know the amount of indirect wages payable.
3. Wage Sheets
Sometimes, wages sheets are also prepared and maintained in addition to the job or time card. Wage sheets analysis is also prepared periodically to know the amount of indirect wages payable. Moreover, incentives paid to the indirect labour are also disclosed in the wages sheets analysis.
4. Purchase Documents
Sometimes, some indirect materials may be purchased and consumed without passing them through stores ledger and services are also received from outside agencies. Invoices are received for these materials and/or service. These expenses are also collected for the allocation.
5. Cash Book and Petty Cash Book
All the expenses including indirect expenses are recorded in the cashbook and petty cash book. At the end of specific period, both cash book and petty cash book will be scrutinized for the purpose of collection of overhead.
6. Subsidiary Documents
Some overheads does not involve any cash outlay from the organization. For example: Depreciation, notional rent, notional interest etc. These expenses are collected by scrutinizing the various subsidiary document at the end of specific period.
7. Journal Entries
Some overheads can be collected from the books of original record i.e., Journal and necessary entries are passed in the cost ledger. It is to be noted that majority of expenses are to be apportioned to Factory overhead, Administration overhead, Selling and Distribution overhead.
It should be remembered that some items of expenses are not solely attributable to factory overhead. Hence, such expenses must be apportioned among factory overhead, administration, selling and distribution overheads on suitable basis.
