Codification of Overhead

2.1 CODIFICATION OF OVERHEAD

The terminology of CIMA defines coding as “a system of symbol designed to be applied to a classified set of items, to give a brief accurate reference facilitating entry, collection and analysis”.

It involves a system of allotment of code numbers to individual head, sub head and group of expenses.

Code numbers allotted to factory overheads and code numbers allotted to office, selling and distribution overheads are known by different names.

Code numbers allotted to factory overheads are known as ‘standing order numbers’.

Code numbers allotted to administrative, selling and distribution overheads are known as ‘cost- accounts numbers’

2.1.1 Methods of coding

a)  Numeric or straight number coding

In this method, each type of expenditure is allotted a fixed number.

For example-

S.No	28	Indirect Material
S. No	58	indirect wages

 

Numbers are allotted to each heading and sub-heading of an expenses like.

Head	Code
Depreciation	1

 

Sub-head	Code
Plant	11
Land and building	12
Furniture and fixtures	13

 

b) Alphabetical or mnemonic

 In this method alphabets are used for identifying the expenses of cost centres.

Example-

AC    - Assembly cost

MC   - Maintenance cost

AD   - Administration     

c) Alphabetical cum numerical method

Under this method both alphabetical as well as numerical numbers are used. Alphabets to denote the main expenditure and the numerals to represent its subdivision

Example

M	Maintenance
M 1	Maintenance of plant
M 2	Maintenance of building
M 3	Maintenance of machinery

 

d) Decimal method

In this method, the whole number is allotted for the head of the expenditure on master group whereas decimals are allotted to primary or secondary items.  

Example –

1	Factory overhead
1.1	Indirect material
1.1.1	Cotton waste
1.1.2	Spare parts
1.2	Indirect labour
1.2.1	Store labour
1.2.2	Inspectors