What is the requirement of a System of Codification of Overhead Expenses in cost accounting?

The Basic Requirement of A System of Codification of Overhead Expenses Are:

  • It should classify the expenses according to nature, object or function in order to distinguish each element or group from the other.

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  • It should be simple and easy to comprehend.
  • It should be easy to memories.
  • It should be concise and preferably numerical to facilitate mechanization of accounts.
  • It should be flexible i.e. there should be enough provision for inclusion of new items.
  • It should conform to the statutory requirements as specified in the Scheduled VI of the Companies Act.
  • It should be economical and according to the needs of the concern.
  • It should facilitate the process of allocation, apportionment and absorption of overheads.
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