Comparision between Production Overhead & Selling & Distribution overhead:
Certain similarities & dissimilarities are observed while comparing production
overhead with the selling & distribution overhead. The following are the observations:
Points of similarities:
-
(a) According to the nature of expenses, analysis of selling & distribution overhead
can be done in the same way, as according to the standing order numbers, the collection
of production overhead is done.
(b)Analysis of selling & distribution overhead done by functions becomes similar to production overhead’s apportionments to various departments.
(c) Apportionment of the general selling & distribution expenses which cannot be directly allocated, to the sales functions ( of different products, salesmen or territories), is done in the same way, as apportionment of production overheads of the service department are done to different production departments.
(d) When selling & distribution overhead is analyzed by products or product groups, it is done in the same way as production overhead is recovered from products.
- (a) Since, in terms of standard, it is not possible to predetermine most of the selling & distribution
overhead, the analysis thereof is primarily historical in nature; but for most of the
production overheads, it is possible to set standard.
(b) Ordinarily, analysis of selling & distribution overheads is operated outside the books of accounts. So, analysis thereof, is primarily in the nature of, what can be called as statistical costs, which is not so, in case of production overheads.
(c) To cost of sales, selling & distribution overheads are chargeable, while to the cost of production, production overheads are chargeable.
(d) Accounting for production overheads is a continuous process; while on the other hand, analysis of selling & distribution overheads is not a continuous process.
(e) To cost centers, allocation & apportionment of production overheads may be done, but to cost units like products, jobs or processes, the same cannot be normally charged. On the other hand, however, allotment & direct allocation of selling & distribution expenses can be done to the products & also to territories, salesmen, customers etc.
A relative profitability study of 2 products – X & Y is made by a company. Between the 2 products, indirect selling & distribution overhead to be allocated in addition to direct costs are as under:
$
Storage costs 70000
Salary of salesmen 425000
Packing & forwarding charges 360000
Invoicing costs 225000
Insurance charges for finished inventory 39000
Other details are: Product X Product Y
Selling price per unit ($) 250 500
Cost per unit (exclusive of indirect selling
& distribution costs) ($) 150 300
Annual sales in units 10000 8000
Average inventory in units 2000 1600
Number of invoices 1250 1000
Storage space required by 1 unit of product X is twice as much as product Y. For both the products, the cost to pack & forward 1 unit is the same. Salary plus commission @ 5% on sales are paid to the salesmen & they put equal amount of efforts on the sales of each of the products.
Prepare a schedule showing the indirect selling & distribution cots apportionment between the two products.
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- Administration Overhead
- Nature & Treatment of some items of Expenses in Cost Accounts- Part I
- Nature & Treatment of some items of Expenses in Cost Accounts- Part II
- Nature & Treatment of some items of Expenses in Cost Accounts- Part III
- Over or Under absorption of Overhead
- Selling & Distribution Overhead
