Classification of Overhead - Accounting Media

Classification of Overhead

The main classification of overhead into:
a) Production overhead;
b) Administration overhead;
c) Selling overhead, and
d) Distribution overhead;
is straight forward enough, but in order to be informative, and to make control of expenditure easier, it is necessary to devise a suitable list of expense headings under each ol'these four main classifications. The
particular headings will, of course, vary in some respects from one kind of business to another, but should be fairly uniform as between lirms which are engaged in the same trade or industry. Two principles will
act as a guide.

a) There must be enough headings to cover every circumstance.
b) None of them should be so narrow in scope as to allow some items of expense to tall into a somewhat similar heading.

Cost accountants often refer to the expense headings for production overhead as "standing order numbers", and to those under the other classifications as "cost account numbers". There is no magic in these names, and expense numbers" or nominal headings" would do equally as well.

For the sake of convenient reference the headings have to be coded. This may be done in anyway desired, but there are two well-tried and acceptable methods.