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Explain the purposes of overhead cost analysis

Explain the purposes of overhead cost analysis

Answers

Wilfred
1. It helps to control expenditure. This is done by comparing actual levels of overheads with expected levels.

2. It helps in charging overhead cost to cost units.

3. It helps in valuation of work in progress. This is because work in progress must include overheads in addition to material and labour costs.

4. Help in the valuation of abnormal loss to be charged on the income statement

5. Help in profit measurement in determining total cost as overheads are also include before comparing total cost with sales.

6. Decision making: Decision makers will need to know the amounts of overhead involved before making a decision e.g. a decision to subcontract.
Wilfykil answered the question on August 5, 2019 at 14:42

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