OVERHEADS CLASSIFICATION

overheads can be classified into functions,elements and behaviour.

Main group of overheads on the basis of functions
production overhead- indirect expenditure incurred in connection of production operation.e.g lubricant s, consumable stores, indirect wages, factory power and light, depreciation of plant and machinery, depreciation of factory building, store keeping expenses, repairs, maintainance etc

administrative overhead-expenses for control, direction etc e.g general management salaries, audit fees, legal charges, postage and telephone, stationary and printing, office rent& rates, office lighting and salaries of office staff.

selling overhead-these are costs of selling to create and stimulate demand or of securing orders e.g advertising salaries, commission on sales, showroom expenses, travelling expenses, bad debts, catalogs and pricelist.

distribution overhead-it comprises all expenditure incurred from the time of product is completed in the factory till it reaches customer. e.g packing costs, carriage outward, delivery van costs, ware housing costs etc.

On the basis of elements
indirect materials
indirect wages
indirect expenses

on the basis of behaviour
fixed overhead-rent&rates,managerial salaries,building depreciation,postage,stationary,legal expenses etc.

variable overhead- indirect materials
indirect wages,indirect expenses,salesman commission,power,light,fuel etc

semi-variable overhead
supervisory salaries, depreciation,repairs etc

Job Costing

Q.Define Job Costing? What are its features?
Job costing is a method of ascertaining cost in those industries in which goods are manufactured or services rendered against specific orders form customers.

Each work order or job order accepted is a cost unit

Costs are ascertained separately for each job or work order undertaken.

The purpose of hob costing is to ascertain the cost and profit on each individual job.

Examples:
printing press, repair, workshops, general engineering companies, interior decoration etc.

Salient features of job costing are:

1. production is always against customers orders and for stocks
2. each job has its specialty
3. each job undertaken is a cost unit
4.separate job cost sheet is prepared for each job in order to ascertain profit/loss on the job.
5.there will be no uniformity in flow of production between departments.

C3 Limitations of Financial Accounting

Q. Explain the Limitations of Financial Accounting. Do you think that these limitations have been overcome by the introduction of cost accounting?

Ans.Limitations of Financial accounting are:
1. Provides only limited information: 
2. Treat figures as single, simple and silent systems
3. Provides only a post mortem record of business transactions
4.Considers only quantifiable information
5. Fails to provide informational needs of different levels of management


Importance of cost accounting:
Whatever may be the type of business, it involves expenditure on materials, labour, and other items required for manufacturing and disposing of the product.

Moreover, a big business requires delegation of responsibility, division of labour and specialisation.

Management has to avoid wastage at each stage, like machine idle, efficient labour, proper utilisation of by products is made and costs are properly ascertained.

Besides that management, creditors and employees also benefitted in numerous ways by installation of good costing system in an industrial organisation.


Cost accounting as an aid to management:

Cost Accounting provides invaluable aid to management.

Adequate costing data helps management in reaching certain important decisions such as, whether hand labour should be replaced by machine, whether a particular product line should be discontinued or not etc.

Costing checks recklessness and avoids occurrence of mistakes.

As an aid to management , it provides invaluable information to enable management to maintain control over stores and inventory, to increase efficiency of the business, and to check wastage and losses.

A3 Fixed capital

one of the method for maintaining capital account

interest on capital
drawings
interest on drawings
salary of the partner
share of profit or loss

All the above are recorded in current account or drawings account.

A3 FLOATING OR FLUCTUATING CAPITAL METHOD FOR P&L ACCT

Amount of capital contributed
interest on capital
drawings
interest on drawings
salary of the partner
share of profit or loss
Balance amount of Balance Shee
note:-the capital at the end of the period will not be same what it was in the beginning.

A3:Differences between Profit and Loss Account and Profit and Loss appropriation account.

Profit & Loss  Account	Profit & Loss Appropriation Account
Profit and loss account is a statement that shows the quantum of surplus funds available to thr entity at the end of a financial period.	profit and loss appropriation account gives you details about how the surplus that is shown in the profit and loss account is going to be spent.
Profit and loss account is a standalone statement	the profit and loss appropriation account is an extension of the former.
Profit and loss account is mandatory for all entities- partnerships, companies etc	while the appropriation account is usually prepared only by partnership firms.
	P&L appropriation account usually gives details about how the surplus money is going to be spent- I mean how much of it goes to each partner, how much is to be invested in capital expenditure, how much to be used as earmarked reserves etc.
Profit and loss account let's you how much profit or loss you are have earned from your business	Profit and loss Appropriations account tell you how much you have received Salary, commission or interest from the Business.
Profit and loss account is made when there is loss or profit in the company .It is made after trading account.	profit and loss appropriation is made when there is only profit in the company . It is an extension to profit and loss account
Profit and loss  account contain items which are charge against the profit .	profit and loss appropriation account are appropriations of profit
Profit and loss account follows the matching principle ( revenue =expenses) .	in profit and loss appropriation account , this principle is not followed.
Profit and loss account neither have opening or closing balances.	profit and loss appropriation account contains both opening and closing balances

A3 MODEL PAPER