Transfer to costing profit and loss accountġ.Apportionment to manufacturing and selling divisions.There are three methods used to apportion administrative overheads: Apportionment of Administrative Overheads ICMA defines administrative overheads as: Administrative overheads are the cost of formulating the policy, directing the organization, and controlling the operations of an undertaking, which are not related directly to research, development, production, distribution, or selling activities or functions. Having considered the above examples of administrative overheads, it is worthwhile to examine the definition from the Institute of Cost and Management Accountants (ICMA) in England. Other expenses related to office operation.Repairs and maintenance for office buildings, etc.Depreciation of office buildings, equipment, etc.Office insurance, heating, cleaning, etc.Other statutory expenses (e.g., fees, salary, and allowances to internal auditors).Salaries and allowances of a legal adviser, their staff, and other allied expenses.Salaries and allowances of public relations officer and their staff.Salaries and allowances or fees for directors, managers, managerial staff, accounts staff, secretaries, and the staff associated with the office.Cost of cleaning materials (e.g., dusters and brushes).Administrative Overheads: ExamplesĮxamples of office and administrative overheads are listed below: 1. They are not affected by changes in the volume of production, sales, or other factors. Other allied matters pertaining to administration, but not related to research and development expenses directlyĪdministrative overheads are concerned with expenditures of a general nature, which do not relate to any particular function (e.g., production, sales, or distribution).Īn important characteristic of administrative overheads is that they are usually constant.Controlling the operation of the enterprise.Administrative Overheads: DefinitionĪdministrative overheads are indirect expenditures incurred in connection with any of the following: They are separately accounted for and are shown separately in the cost sheet. In accounting for the production overheads and valuing closing stock, no administrative, selling, or distribution expenses are considered. All these expenses combined give the total selling cost. By contrast, selling and distribution expenses are related to marketing. Īdministrative overheads are related to office expenses. It is common practice to classify and separately collect production, administrative, selling, and distribution costs.
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