Office and Administrative Overheads

They represent “the cost of formulating the policy, directing the organisation and controlling the operations of an undertaking, which is not related directly to research, development, production, distribution or selling activity or function.” These costs are of a general nature and are not directly related to other functions namely production, sales and distribution. They generally comprise of the following costs:

(a) Indirect material

(i) Printing and stationary used in the office.

(ii) Cost of dusters, brushes etc. for cleaning.

(b) Indirect labour

(i) Salaries and allowances or fees of directors, chief executive and his staff, cost accountant and financial accountant and their staff, secretary and his staff.

(ii) Salaries and allowances of legal adviser and his staff, public relations officer and his staff, remuneration of both statutory and internal auditors.

(c) Indirect expenses

(i) Office rent, rates and insurance.

(ii) Office lighting, heating and cleaning.

(iii) Depreciation and repairs of office buildings, furniture and fittings.

(iv) Legal charges.

(v) Bank charges.

(vi) Trade subscriptions.

(vii) Sundry office expenses.

Audit fees

Fees paid to statutory auditors or internal auditors is a routine item of administration overheads. Simply because the accounts are audited after completion of accounting procedure. Audit fees should not be excluded from cost accounts. Moreover, even accrued expenses are to be taken as overheads. Cost, audit fees should also be treated similar to financial audit fees.

There is a smaller degree of fluctuation in office expenses as compared to works expenses. Their estimate can easily be made on the basis of last year’s profit and loss account after making due allowance for known or anticipated changes.

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