Codification of Overheads
Cost Accounting Notes B.Com 4th Sem CBCS Pattern
Codification of Overheads
Codification is a process of representing each item by a number, the digits of which indicate the group, the subgroup, the type and the dimension of the item. It is always advisable to codify the overhead expenses. Codification helps in easy identification of different items of overheads. There are numerous items of overheads and a code number to each one will facilitate identification of these items easily. Codification can be done by allotting numerical codes or alphabetical codes or a combination of both. Whatever system is followed, it should be remembered that the system is simple for understanding and easy to implement without any unnecessary complications.
Objectives of Codification:
The main objectives of codification of overheads are:
1. To group items of overheads of similar nature as these may be apportioned using the same basis.Requirements of a System of Codification of Overhead Expenses:
The basic requirements of a system of codification of overhead expenses are:
1. It should classify the expenses according to nature, object or function in order to distinguish each element or group from the other.Advantages of Codification
1. It enables systematic grouping of similar items and avoids confusion caused by long description of the items.Methods of Codification
There are different methods used for codification. The following are the three important methods used:
1. Numerical Codes Method.100 Indirect labour.
400 Power.
500 Maintenance.
800 Fixed charges.
2. Decimal Codes: Under this method, the whole numbers are allotted to indicate master group and the decimals indicate the sub-group. For example,Factory Overheads:
1.1.1 Indirect materials.
1.1.2 Consumable stores.
1.1.3 Lubricating oils.
3. Codes with a Combination of Numbers and Alphabet: Under this method the alphabet indicates the main group and the type of expenses is indicated by the numerical. For example,R1 - Repairs to machinery.
R2 - Repairs to plant.
R3 - Repairs to furniture.
Also Read: Important Question Bank for Upcoming Exams
Unit 3: Part A (Overheads – Theory)
(These Questions are subject to modification, if necesary. Download DTS Application for complete notes)
Q. Explain various methods for absorption of overheads. 2016,2017
Q. Explain the treatment of some specific overheads in cost accounting.
Unit 3: Part B (Overheads – Practical)
Q. Practical Problems:
Ø Machine hour Rate 2013, 2015, 2016, 2017, 2018
Ø Primary and secondary distribution of overheads from production department to service department. 2014, 2019