Managerial Accounting

Overheads are known as indirect cost. In most organisations the costing system is set up to measure the costs of individual managers’ areas of responsibilities, such as departments, work centres or activity centres. An indirect cost is one which cannot trace into a particular department, work centres or activity centres.

By the end of this lesson, you should be able to:

• define and explain overhead cost and classification of overhead cost;

• apply allocation, apportionment and absorption and compute overhead cost; and

• evaluate under/over overhead cost