BBA M&CA 301A UNIT II Notes
BBA M&CA 301A UNIT II Notes
Cost, costing, cost accounting and cost accountancy are normally used interchangeably but they
are not synonyms of each other. The meaning of these terms is related and similar but there are
differences. Cost is a sacrificed resource to obtain something, costing is a process of determining
costs, cost accounting is a technique to assist management in establishing various budgets,
standards, etc and cost accountancy is the practice of costing and cost accounting.
COST
Cost is commonly defined as ‘sacrificed resource’ for a particular thing. If we buy a watch for
$30, a number of dollars are considered to be the cost of that watch. Here, 30 dollars are
sacrificed to obtain a watch. It is the simplest example but cost can be of anything which is
measurable in terms of money. For example, the cost of preparing one pizza which in itself
include various other costs like cost of flour, other ingredients, labor, electricity and other
overheads. Just the same way, cost of production of any product or service can be determined.
COSTING
‘Cost’ is a term whereas ‘Costing’ is a process for determining the cost. It may be called a
technique for ascertaining the cost of production of any product or service in the business
organization. The real scope of this term can best be understood in the context of big
manufacturing concerns who produce hundreds of products and spend a lot of money on
material, labor and other overheads. The cost of each product in those organizations requires
recording expenses with to each product or process, classifying expenses like direct material,
labor, overheads etc, allocating direct expenses and suitable apportionment of overheads to each
product for most correct determination of per unit cost of production of each product.
COST ACCOUNTING
This term is of utmost importance for the top management of any business. Cost Accounting is
basically the next step to costing. Cost accounting involves analyzing relevant costing data,
interpret it and present various management problems to management. The scope of cost
accounting involves preparation of various budgets for an organization, determining standard
costs based on technical estimates, finding and comparing with actual costs, ascertaining the
reasons of by variance analysis etc.
COST ACCOUNTANCY
This term is over and above costing and cost accounting. It envisages application of costing and
cost accounting in a business setup. Cost Accountancy facilitates management with cost control
initiatives, ascertainment of profitability and informed decision making. It also includes
determination of selling price for the products, division and unit wise profitability. Forecasting of
expenses and future probable incomes is also a part of the practice of Cost Accountancy.
1. To record, analyze, and classify the cost of products and operations with a view to ascertain
the cost per unit of production, also the cost of each element of expenditure and thereby to
determine the selling price of such products or services.
2. To help management in its task of cost minimization by facilitating cost control through
standard costing and budgetary control, etc. and enable management to measure the efficiency of
the organization as a whole or departmentally and also devise means of increasing efficiency.
3. To provide information to enable management to make such tactical decisions as the closing
down of or continuance of a department, a product mix, make or buy, etc., and also strategic
investment decisions.
More specifically the following may be listed as the functions of cost accounting:
1. To ascertain the unit cost of product, service or department and estimate the net result i.e.,
cost, profit or loss, for each item of operation, production or service.
2. To help construction of budget and budgetary control and standard costing and develop
control systems through analysis and exceptions.
3. To present and interpret data for managerial decision-making and control and suggest suitable
criteria for choosing among alternative investments, products, market, etc.
The extent of advantages derived from the cost accounting is based on the type, adequacy and
efficiency of cost accounting system installation.
Moreover, the management at the maximum should accept the advises given by the cost
accounting system. If so, the following advantages may be available to an organization.
1. Elimination of Wastes, Losses and Inefficiencies: A good cost accounting system eliminates
wastes, losses and inefficiencies by fixing standard for everything.
2. Cost Reduction: New and improved methods of production are followed under cost
accounting system. It leads to cost reduction.
3. Identify the reasons for Profit or Loss: A good cost accounting system highlights the
reasons for increasing or decreasing profit. If so, the management can take remedial action to
maintain profitability of the concern. There is no possibility of shutting down of any product or
process or department.
4. Advises on Make or Buy Decision: On the basis of cost information, the management can
decide whether make or buy a product in open market. The management can rightly choose the
best out of many alternatives. Sometimes, spare capacity can be used profitably.
5. Price Fixation: The total cost of a product is available in the costing records. It is highly
useful for price fixation of a product.
6. Cost Control: Budgets are prepared and standards are fixed under cost accounting system.
The expenses are not permitted beyond the budget amount. The actual performance is compared
with standard to find the variation. If there is any variation, reasons are find out and the
management can exercise control. Period to period cost comparison also helps cost control.
7. Assist the Government: Government can collect reasonable tax from the company and
exercise price control.
8. Help the Trade Union: Bonus calculation is very easy to the trade union. Reasonable
remuneration is also fixed on the basis of cost accounting information.
9. Marginal Analysis of Cost: It is done for facilitating the short-term decisions especially
during depression period.
10. Fixation of Responsibility: Responsibility centers is fixed under cost accounting system. If
responsibility is fixed, it becomes difficult to evade responsibility of performance and leads to
effective performance.
11. Helps to Prepare Financial Accounts: The information like value of closing materials,
work in progress and finished goods are necessary to prepare financial accounts. This
information is supplied by the costing records and helps to prepare financial accounts without
any further delay.
12. Prevention of Frauds: Introducing cost audit can prevent frauds. If so, correct and reliable
data was available from the costing records which are highly useful to the government, share
holders, the creditors and the like.
2. The cost of previous year is not same in the succeeding year. Hence, cost data are not highly
useful.
3. The cost is ascertained on the basis of full utilization of capacity. If capacity is partly utilized,
the cost may not be true.
4. Financial character expenses are not included for cost calculation. Hence, the calculated cost is
not correct always.
5. In cost accounting, costs are absorbed on pre-determined rate. It leads to over absorption or
under absorption of overheads.
6. Cost Accounting fails to solve the problems relating to work study, time and motion study and
operation research.
7. Installation of Cost Accounting System requires the maintenance of many costing records. If
results in heavy expenditure.
8. Delay in receiving costing information does not result in taking quality decision by the
management.
There are certain cost accounting principles that are very important. Some of the principles of
costing are given below.
1. Previous costs should not be included in any part of the future costing.
4. It is preferred and suggested by every firm to follow the double entry principle. It simply
means keeping two sets of accounting books which will have transaction records.
Management accounting techniques break costs into two major cost classifications, product
costs, those costs related to manufacturing, and period costs, which are all non-manufacturing
costs. Product costs are then broken down into the elements of cost. These elements, labor,
materials and overhead, make up the cost of products at nearly every company. Understanding
accounting cost classifications can help you make sure that you are accounting for production at
your company in the correct manner.
The following chart shows the various elements of cost and how they are classified.
Overheads
1. Material Cost: CIMA defines material cost as “the cost of commodities supplied to an
undertaking.” This is the cost of material or the commodity used by the organisation for
its production purpose. Material is the substance, from which a product is made. Thus, it
may be in a raw or a manufactured state. It can be direct or indirect.
Direct Material Cost forms an integral part of the finished product and is identified
with the individual cost centre. It is also described as process material, stores
material, production material, etc. Example: Raw materials purchased or purchased
primary packing material, etc.
Indirect Material Cost is used for ancillary purposes of the business and cannot be
conveniently identified with the individual cost centre. Example: Consumable stores,
oil and waste, printing and stationery material etc.
2. Labour Cost: This is the cost, incurred in the form of remuneration paid to the employees
or labours of the organisation. The workforce required to convert material into finished
product is called labour. It can be direct or indirect.
Direct Labour Cost is the cost incurred on those employees who directly take part in
the manufacturing process and easily identified with the individual cost centre.
Indirect Labour Cost is the cost incurred on those employees who do not directly
take part in the manufacturing process and cannot identified with the individual cost
centre. Example: salary of foreman, salesmen, director’s salary, etc.
3. Expenses: CIMA defines expenses as “the cost of services provided to an undertaking and
the notional cost of the use of owned assets.” It can be direct or indirect.
Direct Expenses are the expenses which can be directly identified with the individual
cost centres. Example: hire charges of machinery, cost of defective work for a particular
job or contract etc.
Indirect Expenses are the expenses which cannot be directly identified with the
individual cost centres. They are incurred in common and can be apportioned to various
cost centers or cost units proportionately on some basis. Examples of such expenses are
factory rent, lighting, insurance, office and administration expenses, selling and
distribution expenses, etc.
Overheads: The aggregate of indirect material cost, indirect labour cost, and indirect
expenses is termed as overheads. Thus all indirect costs are overheads.
a) Factory or Works Overheads: These are indirect costs incurred inside a factory or
works. Examples are factory supplies such as oil, consumable stores, lubricants, indirect
labour such as factory manager’s salary, timekeeper’s salary, etc., and indirect expenses
such as factory rent, factory lighting, factory insurance, etc.
b) Office and Administration Overheads: These are indirect costs incurred in the
general and administrative office. Examples are indirect materials such as stationery,
brooms, dusters, etc, and indirect labour such as salaries of office staff, directors’ fees,
etc., and indirect expenses such as rent, insurance, lighting, etc., of the office.
c) Selling and Distribution Overheads: These are indirect costs incurred in connection
with the selling and distribution of goods and services. Examples are indirect materials
such as packing materials, printing and stationery materials, etc., and indirect labour such
as salaries of sales staff and sales manager, commission, etc., and indirect expenses such
as advertising expenses, insurance, godown rent, etc.
Question:- “Costs are classified according to the nature of the operations.” Set out the
classification with a brief description of the operations covered by each heading.
OR
Discuss the classification of costs in detail.
Answer:
Classification of Cost
An important step in computation and analysis of cost is the classification of costs into different
types. Classification helps in better control of the costs and also helps considerably in decision
making. Classification of costs can be made according to the following basis.
B. Classification according to nature: As per this classification, costs can be classified into
Direct and Indirect. Direct costs are the costs which are identifiable with the product unit
or cost center while indirect costs are not identifiable with the product unit or cost center
and hence they are to be allocated, apportioned and then absorb in the production units.
All elements of costs like material, labour and expenses can be classified into direct and
indirect. They are mentioned below.
i. Direct and Indirect Material: Direct material is the material which is identifiable with
the product. For example, in a cup of tea, quantity of milk consumed can be
identified, quantity of glass in a glass bottle can be identified and so these will be
direct materials for these products. Indirect material cannot be identified with the
product, for example lubricants, fuel, oil, cotton wastes etc cannot be identified with a
given unit of product and hence these are the examples of indirect materials.
ii. Direct and Indirect Labour: Direct labour can be identified with a given unit of
product, for example, when wages are paid according to the piece rate, wages per unit
can be identified. Similarly wages paid to workers who are directly engaged in the
production can also be identified and hence they are direct wages. On the other hand,
wages paid to workers like sweepers, gardeners, maintenance workers etc. are indirect
wages as they cannot be identified with the given unit of production.
iii. Direct and Indirect Expenses: Direct expenses refers to expenses that are
specifically incurred and charged for specific or particular job, process, service, cost
center or cost unit. These expenses are also called as chargeable expenses. Examples
of these expenses are cost of drawing, design and layout, royalties payable on use of
patents, copyrights etc, consultation fees paid to architects, surveyors etc. Indirect
expenses on the other hand cannot be traced to specific product, job, process, service
or cost center or cost unit. Several examples of indirect expenses can be given like
insurance, electricity, rent, salaries, advertising etc.
It should be noted that the total of direct expenses is known as ‘Prime Cost’ while the
total of all indirect expenses is known as ‘Overheads’.
C. Classification according to behaviour: Costs can also be classified according to their
behavior. This classification is explained below.
i. Fixed Costs: Out of the total costs, some costs remain fixed irrespective of changes in
the production volume. These costs are called as fixed costs. The feature of these
costs is that the total costs remain same while per unit fixed cost is always variable.
Examples of these costs are salaries, insurance, rent, etc.
ii. Variable Costs: These costs are variable in nature, i.e. they change according to the
volume of production. Their variability is in the same proportion to the production.
For example, if the production units are 2,000 and the variable cost is Rs. 5 per unit,
the total variable cost will be Rs. 10,000, if the production units are increased to
5,000 units, the total variable costs will be Rs. 25,000, i.e. the increase is exactly in
the same proportion of the production. Another feature of the variable cost is that per
unit variable cost remains same while the total variable costs will vary. In the
example given above, the per unit variable cost remains Rs. 2 per unit while total
variable costs change. Examples of variable costs are direct materials, direct labor etc.
iii. Semi-variable Costs: Certain costs are partly fixed and partly variable. In other
words, they contain the features of both types of costs. These costs are neither totally
fixed nor totally variable. Maintenance costs, supervisory costs etc are examples of
semi-variable costs. These costs are also called as ‘stepped costs’.
i. Production Costs: All costs incurred for production of goods are known as production
costs.
ii. Administrative Costs: Costs incurred for administration are known as administrative
costs. Examples of these costs are office salaries, printing and stationery, office
telephone, office rent, office insurance etc.
iii. Selling and Distribution Costs: All costs incurred for procuring an order are called
as selling costs while all costs incurred for execution of order are distribution costs.
Market research expenses, advertising, sales staff salary, sales promotion expenses
are some of the examples of selling costs. Transportation expenses incurred on sales,
warehouse rent etc are examples of distribution costs.
iv. Research and Development Costs: In the modern days, research and development
has become one of the important functions of a business organization. Expenditure
incurred for this function can be classified as Research and Development Costs.
E. Classification according to time: Costs can also be classified according to time. This
classification is explained below.
i. Historical Costs: These are the costs which are incurred in the past, i.e. in the past
year, past month or even in the last week or yesterday. The historical costs are
ascertained after the period is over. In other words it becomes a post-mortem analysis
of what has happened in the past. Though historical costs have limited importance,
still they can be used for estimating the trends of the future, i.e. they can be
effectively used for predicting the future costs.
ii. Predetermined Cost: These costs relating to the product are computed in advance of
production, on the basis of a specification of all the factors affecting cost and cost
data. Predetermined costs may be either standard or estimated. Standard Cost is a
predetermined calculation of how much cost should be under specific working
conditions. It is based on technical studies regarding material, labor and expenses.
The main purpose of standard cost is to have some kind of benchmark for comparing
the actual performance with the standards. On the other hand, estimated costs are
predetermined costs based on past performance and adjusted to the anticipated
changes. It can be used in any business situation or decision making which does not
require accurate cost.
i. Marginal Cost: Marginal cost is the change in the aggregate costs due to change in the
volume of output by one unit. For example, suppose a manufacturing company
produces 10,000 units and the aggregate costs are Rs. 25,000, if 10,001 units are
produced the aggregate costs may be Rs. 25,020 which means that the marginal cost
is Rs. 20. Marginal cost is also termed as variable cost and hence per unit marginal
cost is always same, i.e. per unit marginal cost is always fixed. Marginal cost can be
effectively used for decision making in various areas.
ii. Differential Costs: Differential costs are also known as incremental cost. This cost is
the difference in total cost that will arise from the selection of one alternative to the
other. In other words, it is an added cost of a change in the level of activity. This type
of analysis is useful for taking various decisions like change in the level of activity,
adding or dropping a product, change in product mix, make or buy decisions,
accepting an export offer and so on.
iv. Relevant Cost: The relevant cost is a cost which is relevant in various decisions of
management. Decision making involves consideration of several alternative courses
of action. In this process, whatever costs are relevant are to be taken into
consideration. In other words, costs which are going to be affected matter the most
and these costs are called as relevant costs. Relevant cost is a future cost which is
different for different alternatives. It can also be defined as any cost which is affected
by the decision on hand. Thus in decision making relevant costs plays a vital role.
v. Replacement Cost: This cost is the cost at which existing items of material or fixed
assets can be replaced. Thus this is the cost of replacing existing assets at present or at
a future date.
vi. Abnormal Costs: It is an unusual or a typical cost whose occurrence is usually not
regular and is unexpected. This cost arises due to some abnormal situation of
production. Abnormal cost arises due to idle time, may be due to some unexpected
heavy breakdown of machinery. They are not taken into consideration while
computing cost of production or for decision making.
vii. Controllable and Uncontrollable Costs: In cost accounting, cost control and cost
reduction are extremely important. In fact, in the competitive environment, cost
control and reduction are the key words. Hence it is essential to identify the
controllable and uncontrollable costs. Controllable costs are those which can be
controlled or influenced by a conscious management action. For example, costs like
telephone, printing stationery etc. can be controlled while costs like salaries etc.
cannot be controlled at least in the short run. Generally, direct costs are controllable
while uncontrollable costs are beyond the control of an individual in a given period of
time.
viii. Shutdown Cost: These costs are the costs which are incurred if the operations are
shut down and they will disappear if the operations are continued. Examples of these
costs are costs of sheltering the plant and machinery and construction of sheds for
storing exposed property. Computation of shutdown costs is extremely important for
taking a decision of continuing or shutting down operations.
ix. Sunk costs: These are costs which have been created by a decision that was made in
the past that cannot be changed by any decision that will be made in the future.
Investment in plant & machinery are prime examples of such costs. Since sunk costs
cannot be altered by later decisions, they are irrelevant for decision making
x. Avoidable &Unavoidable costs: Avoidable costs are those which will be eliminated
if a segment of the business with which they are directly related is discontinued.
Unavoidable costs are those which will not be eliminated with the segment. Such
costs are merely reallocated if the segment is discontinued. For example, in case a
product is discontinued, salary of the factory manager or factory rent cannot be
eliminated. It will simply mean that certain other products will have to absorb a
higher amount of such overheads. However salary of clerks or bad debts traceable to
the product would be eliminated.
xi. Urgent Costs: These costs are those which must be incurred in order to continue
operations of the firm. For example, cost of material and labor must be incurred if
production is to take place.
Question:- Discuss various tools and techniques used in management accounting.
Answer: Management accountants look ahead - they focus on forecasting and decision-making.
They use information to advise on how the business can move forward, for example, should a
company buy another, should it invest in new equipment. Management accounting involves
using the internal financial information available to managers, as well as that information which
companies must publish by law. This contributes to forward planning, reviewing and analysing
the performance of the business.
Management accounting is the accounting or analysis of financial statements prepared for the
managers within organizations to make them aware of the business conditions and eventually it
helps them to make better decisions for the future.
The following are the major tools and techniques of management accounting that can help an
organization or business to support its sustainability objectives.
1. Ratio Analysis
A ratio is one variable measured in terms of another, for example, how many girls are in a class
compared to the number of boys. Ratio analysis is one tool in the strategic decision making
process. Management accountants use ratios along with other internal business data and publicly
available information to assess aspects of a company”s performance.
Efficiency or activity ratios, including liquidity - these show whether the business is able
to pay its debts. They look at whether the assets of the company (its buildings, land
equipment) could repay any debts.
Gearing- shows the long-term financial position of the business. It can show balance of
funding in a business i.e. how much money is from loans (on which it needs to pay
interest) and how much is from shareholder funds (on which it needs to pay a dividend to
shareholders). More money from loans carries more cost and therefore more risk.
Profitability or performance ratios - show how well a business is doing. They relate to the
business objectives, which might be to make profit or obtain a return on investment, or
collects its debts quickly.
It is important that management accountants look at all the relevant ratios when making a
decision. Management accountants need to be able to produce accurate analysis, correct forecasts
and a detached and professional overview to a company’s performance. These contribute to the
future success of a business.
2. Cost Volume Profit (CVP) Analysis
CVP analysis investigates the impact on total revenue, profits and costs, for a change in selling
price, output and the variable costs. CVP analysis provides the analysis which helps the
managers in understanding the relationship between price, cost and output.
3. Budget
Budgets are financial plans for the future. They help the business to see where it will incur costs
and where revenues will come from. They are particularly important in helping to co-ordinate the
different parts or activities of a business. Among the budget, flexible budget is more important
tool which helps management in decision making.
Flexible budget is a budgeting technique in which the budget is evaluated and prepared again at
different levels of the activity. It allows comparing the planned cost with the actual cost. If there
is a difference in planned and actual cost then proper action can be taken before moving to
further activity. The budget is differentiates the fixed and variable cost, thereby allowing
adjustments in the budget at each activity level.
4. Absorption Costing
Absorption costing divides the costs in two parts: product costs and period costs. The product
costs are manufacturing costs (fixed and variable both) and non-manufacturing costs are such as
selling and expenses and called period costs. It allocates all fixed and variable cost to each
product produced. Thus it includes all costs that is why it is also called as full cost method.
5. Standard Costing
Standard costing allocates costs on per unit basis. It measures variation is the standard and actual
costs and the proper actions are taken for correction. It includes all direct costs, indirect costs
,product and period costs. Variances show the difference between what was forecast to happen
(in a budget) and what actually happened. The reasons for these differences can then be analysed
to show why the variance occurred. Management accountants can then see how the business can
build on positive variances or avoid negative ones in future.
6. Transfer Pricing
Transfer pricing is a method of allocating the charges between different parties of related good or
service or property. It distributes all charges among the users of a particular service or good. It is
also used by the government to allocate taxation between national and international tax payers.
Thus there are numerous techniques and tools of management accounting which can support the
organization in achieving its sustainability objectives. The implementation of these tools and
techniques may differ across organizations.
Lean thinking model or Just in Time helps management is in producing the right output at the
right place and on the right time. The lean thinking model has 5 steps in the whole process. It
produces units at customer orders avoiding the high inventory, high defects and more efforts. It
leads to low inventory, less defects, less efforts and attracting quicker consumers.
8. Six Sigma
Six Sigma is a management accounting technique which helps in improving the quality of the
process and the product. It identifies the customer requirement and then variations of the
produced product from the customer requirements. Once this gap is identified the process
improvement steps are taken to align the product process with the customer requirements. Six
Sigma helps in eliminating or keeping the variations in requirement and process at acceptable
level.
Six Sigma measures the quality as frequency of defects per million operations. Variations are
measured by standard deviations from the given mean. It defines the lower limit and upper limit.
W. E Deming introduced the concept of Total Quality Management (TQM). The TQM focuses
on quality improvement by modernization of the machines and equipment and proper training to
the workers and eventually increasing customer satisfaction. The purpose of TQM is to make
employees to use statistical methods and take the proper training and use problem –solving
methods in the process. Employees are encouraged to state hypotheses, to collect the data and
analyze and interpret and come up with new findings and formulation of new hypothesis.
Unit cost
Unit cost
Quantity
Quantity
Quantity
Cost(Rs)
Cost(Rs)
Amount
Date Particulars
Per unit
(Units)
(Units)
(units)
Total
Total
(Rs)
(Rs)
(Rs)
(Rs)
Jan 1 Balance b/d - - - - - - 500 2000 4
Jan 4 Requisition
slip no. - - - 200 800 4 300 1200 4
Jan 5 Goods received
note no. …… 200 850 4.25 - - - 300 1200 4
Jan 10 Requisition
slip no. - - - 300 1200 4
100 425 4.25 100 425 4.25
Jan 12 Goods received
note no. 150 615 4.10 - - - 100 425 4.25
150 615 4.10
Jan 15 Requisition
slip no. - - - 100 425 4.25 150 615 4.10
Jan 19 Requisition
slip no. - - - 100 410 4.10 50 205 4.10
Jan 20 Goods received
note no. 300 1350 4.50 - - - 50 205 4.10
300 1350 4.50
Jan 25 Goods received
note no. 400 1600 4.00 - - - 50 205 4.10
300 1350 4.50
400 1600 4.00
Jan 26 Requisition
slip no. - - - 50 205 4.10 150 675 4.50
150 675 4.50 400 1600 4.00
Jan 30 Requisition
slip no. - - - 150 675 4.50 300 1200 4.00
100 400 4.00
Unit cost
Quantity
Quantity
Quantity
Cost(Rs)
Cost(Rs)
Amount
Per unit
(Units)
(Units)
Date Particulars
(units)
Total
Total
(Rs)
(Rs)
(Rs)
(Rs)
Jan 4 Requisition
slip no. - - - 200 800 4 300 1200 4
Jan 5 Goods received
note no. 200 850 4.25 - - - 300 1200 4
Jan 10 Requisition
slip no. - - - 200 850 4.25
Jan 15 Requisition
slip no. - - - 100 410 4.10 100 400 4.00
50 205 4.10
Jan 19 Requisition
slip no. - - - 50 205 4.10
Jan 26 Requisition
slip no. - - - 200 800 4.00 50 200 4.00
Calculate the total earnings of the worker under the Halsey Plan.
Also find out effective rate of earnings.
SOLUTION:
Standard time (S) = 20 hours
Time taken (T) = 15 hours
Rate per hour (R)= Rs.1.50 per hour
Total Earnings = T x R + 50% (S-T) x R
= 15 X Rs. 1.50 + (20-15) xRs. 1.50
=Rs.26.25
Disadvantages
Overheads and Preparation of Cost Sheet
Overheads
Cost related to a cost center or cost unit may be divided into
two ie. Direct and Indirect cost. The Indirect cost is the overhead
cost and is the total of indirect material cost, indirect labour cost,
indirect expenses.
CIMA defines indirect cost as “expenditure on labour,
materials or services which cannot be economically identified
with a specific salable cost per unit”.
Indirect costs are those costs which are incurred for the benefit
of a number of cost centers or cost units. So any expenditure over
and above prime cost is known as overhead. It is also called ‘burden’,
‘supplementary costs’, ‘on costs’, ‘indirect expenses’.
Classification of Overheads