Earlier article dealt with definition and types of overhead.However, why the need to classify overhead costs?
Some justifications are appended below:
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- Classification enables an analysis to be made of overhead costs, under the nature of the item, the type of service provided and by department, cost centre, process and others
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- Items need to be arranged in logical sequence having regard to their nature or the purpose to be fulfilled.
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- Detailed information is provided for the control of overhead expenses
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- Certain overheads have to be apportioned and classification facilitates the task of collecting the costs of a particular service.
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- The provision of detailed costs enables the behaviour of costs to be observed.
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