CAS-3: Production and Operation Overheads

• What production overheads include and exclude (§§4.12, 5)
• Absorbing variable overheads on actual output and fixed overheads on normal capacity (§6.3)
• Under-absorption and the reconciliation (§7.3)
• Sharing bases and disclosures (§§6.2, 8)

Chapters

1. The costs nobody can pin to one uniform · Sort the overheads into fixed and variable (§§4.12, 5.1–5.8)
2. A fair share in a slow month · Share fixed costs over a normal month, not this month (§§4.2, 6.3.1, 6.3.2, 7.3)
3. Onto the cost card · Add variable and fixed overheads to the uniforms (§§6.3, 7.1, 7.2)
4. Spot the mistakes in the overhead sheet · Find the three mistakes (§§5.4, 5.7, 6.3.2, 7.3)

Key terms

• Production or operation overheads (§§4.12, 5.1–5.8): The indirect costs of making a product or giving a service: indirect materials, indirect staff and indirect expenses. Counted at what they cost; bought-in items at the invoice price less discounts and taxes you get back.
• Absorption (§§4.2, 6.3, 7.3): Charging overheads to products with a rate. Variable overheads: on what was actually made. Fixed overheads: on normal capacity. Any under- or over-charge goes in the reconciliation, not into the product.