Hi everyone! I’m an Indian student currently pursuing Commerce stream, and I’m facing some confusion with my Cost Accounting subject. I’m having difficulty understanding the concept of overheads and how to allocate them to various cost centers. Can someone help me clarify this? Thanks in advance!
Hey! Don’t worry, I had a similar problem when I was studying Cost Accounting. Overheads refer to the indirect expenses incurred during the production process. They cannot be directly attributed to a particular cost center. Hence, allocation is done based on predetermined allocation bases, such as machine hours, labor hours, or material cost.
Allocating overheads can be a bit tricky, but once you understand the concept, it gets easier. Make sure to analyze the nature of the expenses and identify the relevant cost drivers for each cost center. This will help you allocate overheads accurately and effectively.
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