Why Do We Need To Classify Overhead Costs?

Earlier article dealt with definition and types of overhead.However, why the need to classify overhead costs?


Some justifications are appended below:



  1. 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



  1. Items need to be arranged in logical sequence having regard to their nature or the purpose to be fulfilled.



  1. Detailed information is provided for the control of overhead expenses


  1. Certain overheads have to be apportioned and classification facilitates the task of collecting the costs of a particular service.



  1. The provision of detailed costs enables the behaviour of costs to be observed.

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