The Treatment of Administration of Overheads In Cost Accounting

Accounts and cost Department Expenses:

In small concerns administration overheads include the expenses of accounts and cost department also. But in large concerns, the expenditure may require further analysis as grouping the expenses under a number of standing orders and under different centers.


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For example, the accounting of material expenses may be section may be apportioned to different cost centres either on the basis of number of employees or time spent for each.


Cost of Preparing Estimates and Tendering:

The cost of preparing estimates and tendering, if small, may be included in the administration overhead. However, if the cost is significant, it may be treated as follows:

  • It may be treated as a part of the selling overhead if the items for which estimates are prepared are of a standard nature.
  • It may be treated as a part of manufacturing overhead if these are to be incurred to meet the customers’ specifications.
  • It may be excluded from the cost accounts if no benefit is derived from the expenditure.
  • It may be treated as a deferred revenue if such expenditure is heavy and will give benefit in the future period also.

Interest on Capital:

There is difference between the interest on borrowed capital such as loans and debentures and interest on own capital. Interest on loans and debentures is payable and the general opinion is to include it in cost accounts. Interest on own capital is not payable to any outsider; the charge is notional one and hence in practice it is excluded from cost accounts. But, however, we give below the arguments for and against of inclusion of interest on capital in cost accounts.

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