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    Question

    Refer to the following information to answer the next 4 questions (Q15 to Q18) Overheads are indirect costs that cannot be directly traced to specific products or services but are necessary for the overall operations of a business. These costs include various types of expenses such as administration, production, selling, and distribution overheads. Each category of overheads plays a distinct role in the functioning of a business. Accurate classification and allocation of these overheads are crucial for effective cost accounting, enabling businesses to determine the true cost of their products and services and make informed financial decisions. Understanding how to allocate and manage these overheads helps in analyzing the profitability and efficiency of different segments of the business, ensuring better financial control and strategic planning. The process of cost allocation involves assigning costs to cost centers or cost units, ensuring that each segment of the business is charged with its relevant expenses. This helps in analyzing the profitability and efficiency of different segments of the business, ensuring better financial control and strategic planning. Overheads also impact financial accounting, as adjustments for under-absorption or over-absorption need to be made to reflect the actual costs incurred. Understanding how to manage these overheads aids in financial analysis, budgeting, and forecasting, ultimately contributing to the overall financial health and sustainability of the business.

    In cost accounting, overheads are classified into

    various categories based on the nature of the expenses. Which category do Director’s remuneration and expenses fall under?
    A Production Overheads Correct Answer Incorrect Answer
    B Administration Overheads Correct Answer Incorrect Answer
    C Selling Overheads Correct Answer Incorrect Answer
    D Distribution Overheads Correct Answer Incorrect Answer
    E Other Overheads Correct Answer Incorrect Answer

    Solution

    Director's remuneration and expenses are considered part of administration overheads because they relate to the overall management and administrative functions of the company. Administration overheads cover costs that are necessary for the general administration and management of the business, including executive salaries, office supplies, utilities, and other general administrative expenses.

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