Production overheads are the overhead costs of both the production departments and the service departments.

Related MCQs

• Which of the following procedure is incorrect for attributing overhead costs to cost units? I. Collecting production overhead costs by item II. Establishing cost centres III. Allocating and apportioning overhead costs to cost centres IV. Apportioning service cost centre costs to production cost centres V. Absorbing production cost centre costs into cost units
• Indirect production costs are incurred in three main ways: • Production activities: costs arising in production departments such as fuel, depreciation, supervision • Service activities: the cost of operating non-producing departments such as materials handling, canteen • Establishment costs: general production overheads such as factory rent/rates, heating and lighting
• . Production Overheads are costs related to the production process other than direct labour and materials. They are also known as factory overheads since they are incurred inside the factory, other overheads such as selling and administrative overheads are always charged to in the period in which they are incurred
• The apportionment of production overhead costs might be in two stages: • sharing (or dividing) general costs between production centres and service centres; and • then sharing the costs of the service centres between the production centres.
• Variable overhead is overhead that increases as more production work is done. Total variable overhead expenditure therefore depends on the volume of production. Variable overhead is usually calculated as an amount for each direct labour hour worked.
• Overhead absorption is the process whereby overhead costs allocated and apportioned to production cost centres are added to unit, job or batch costs.
• A situation may arise where both service departments do work for the other service department, as well as the production departments. The secondary apportionment is more complex. The process is called reciprocal apportionment
• If the amount of production overheads absorbed into product costs is more than the actual production overhead expenditure, there is:
• Administration overheads and sales and distribution overheads are not absorbed into product costs. Instead, they are treated in full as an expense in the financial period to which they relate.
• Apportionment means sharing on a reasonable basis. Many overhead costs are costs that cannot be allocated directly to one cost centre, because they are shared by two or more cost centres. These costs are apportioned between the cost centres.