Estimation and Collection of Manufacturing Overheads

The amount of factory
overheads is required to be estimated. The estimation is usually done with reference to
past data adjusted for known future changes. The overhead expenses are usually
collected through a system of standing orders.
Standing Orders : In every manufacturing business, expenses are incurred on direct
materials and direct labour in respect of several jobs or other units of production,
manufacture of which is undertaken. The incurring of these expenses is authorised by
production orders or work orders. The work order numbers are not ordinarily fixed or
permanent. They are generally allotted in a serial order according to the number of
manufacturing jobs undertaken by the business. In addition, indirect expenses are incurred
in connection with the rendering of services to the production departments, or to
the manufacturing process. The term “Standing Order” denotes sanction for indirect
expenses under various heads of expenditure.