Accounting for Overhead

Manufacturing overheads are collected under suitable standing
order numbers and selling and distribution overheads against cost accounts numbers.
Total overhead expenses so collected are apportioned to service and production departments
on some suitable basis. The expenses of service departments are finally
transferred to production departments. The total overhead of production departments is
then applied to products on some realistic basis, e.g. machine hour; labour hour;
percentage of direct wages; percentage of direct materials; etc. It should be remembered
that the use of different methods will lead to a different amounts being computed for the
works overhead charged to a job hence to different total cost.