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CIMA BA2 Notes Chapter 4-Overhead analysis
CIMA BA2 Notes Chapter 4-Overhead analysis
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BA 2 - Fundamentals of Management AccountingOverhead analysis
Chapter four
BA 2 - Overhead analysis. Quantia Learning
,BA 2 - Overhead analysis. Quantia Learning
, Overhead costs defined as ‘expenditure on labour, materials or services that cannot be
economically identified with a specific saleable cost unit’ (CIMA Terminology). Overheads
comprise of indirect material, indirect labour and indirect expenses.
Total cost per unit = Direct costs (prime costs) + Overheads
Types of overheads
Overhead costs may be classified according to the function within the organisation responsible
for incurring the cost.
Examples of overhead cost classifications include:
• production overhead
• selling and distribution overhead
• administration overhead.
Note: It is usually possible to classify the majority of overhead costs in this way, but some
overhead costs relate to the organisation generally and may be referred to as general
overhead.
Production overhead
This is the indirect costs incurred by the production function. Since organisations are often
organised by function (doesn’t necessarily need to be located in the same geographical area), a
manufacturing organisation which manufactures one product may have the following functions:
• Production - concerned with the physical production of the product.
• Sales - concerned with the selling and distribution of the finished product.
• Administration - concerned with the general administration of the organisation (for example
dealing with customer accounts or orders).
• Finance - concerned with all aspects of finance within the organisation.
The production function is usually divided into a number of departments or cost centres.
BA 2 - Overhead analysis. Quantia Learning
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