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REPORT ONTreatment of Overhead Allocation in Determination of Seat Rent of ‘Abdul

Wadud Memorial Hospital’, Khulna

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PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY

Treatment of Overhead Allocation in Determination of Seat Rent of ‘Abdul Wadud Memorial Hospital’, Khulna

SUBMITTED TOM. Takibur Rahman

LecturerDepartment of Accounting & Information System

Faculty of Business Administration and Management

SUBMITTED BYGroup: 01(Warrior)Level-3, Semester-1

Faculty of Business Administration and Management

Name of the students Reg. No. Roll No.

Md. Kamruzzaman (L) 00660 01

Shuvradeb Barai 00668 09

Abu Zafour 00680 21

Sahana Parveen 00666 07

Nazmul Alam Siddiqui 00565 24

Cost Accounting Course Code: AIS 314

SUBMISSION DATE: 24 April 2008

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PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY

Letter of Transmittal

Date: 24 April 2008

ToM. Takibur RahmanLecturerDepartment of Accounting and Information SystemFaculty of Business Administration and Management

Subject: Submission Report on Cost Accounting.

Dear Sir,

Here we are submitting our report on “Treatment of Overhead Allocation in Determination of Seat Rent of ‘Abdul Wadud Memorial Hospital’ Khulna” prescribed by you in your course Cost Accounting. For this Purpose, we have gone through internet, different books, articles, journals, interview of authorities and employees of the respective organizations and class lecture sheets for the relevant information of the assigned topic.

Please call me for any further information at your convenient time and place.

Yours truly,

Group: 01(Warrior)Level-3, Semester-IFaculty of Business Administration and ManagementPatuakhali Science and Technology University

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Letter of Authorization

Date: 24 April 2008

ToM. Takibur RahmanLecturerDepartment of Accounting & Information SystemFaculty of Business Administration and Management

Subject: Declaration regarding the validity of the report.

Dear Sir,

This is our truthful declaration that the “Treatment of Overhead Allocation in Determination of Seat Rent of ‘Abdul Wadud Memorial Hospital’ Khulna” we have been prepared is not a copy of any research report previously made by any other students.

We also express my honest confirmation in support of the fact that the said “Report” has neither been used before to fulfill any other course related purpose nor it will be submitted to any other person or authority in future.

Yours truly,

Group: 01(Warrior)Level-3, Semester-IFaculty of Business Administration and Management

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Patuakhali Science and Technology University

Acknowledgement

At first we desire to express our deepest sense of gratitude of almighty Allah.

With profound regard we gratefully acknowledge our respected course teacher M.

Takibur Rahman, Lecturer, Department of Accounting & Information System,

Faculty of Business Administration and Management, for his generous help and day

to day suggestion during the survey.

We like to give thanks especially to our friends and many individuals, for their

enthusiastic encouragements and helps during the preparation of this report us by

sharing ideas regarding this subject and for their assistance in typing and proof

reading this manuscript.

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Table of Contents

► Executive summary ……………………………………………..……………………...……. 01►Origin of the report ………………………………………………………………………........ 02► Purpose of the report ………………………………………………………………………… 02 ► Limitation of the Study …………………………………………………..…………………... 03► Methodology of the Study ………………………………………………..……………...…... 04

►Introduction …………………………………………………………………………………… 05 ► Overview of Abdul Wadud Memorial Hospital ……………………………………………… 06► Definition Overhead ………………………………………………………………………….. 07► Classification of Overhead …………………………………………………………………… 07► Cost Categories Normally Included in a Firm’s Overhead Schedule ………………………... 11► Income Statement …………………………………………………………………………….. 12► Basis of Cost Allocation ……………………………………………………………………… 13► Calculation of profit Margin for Seat ………………………………………………………… 15► Calculation of Profit Margin for Other Sources ……………………………………………… 17

►Summary ……………………………………………………………………………………… 18

► Recommendations …………………………………………………………………………..... 19

► Conclusion ……………………………………………………………………………………. 20

► References ……………………………………………………………………………………. 21

Chapter – 2

Chapter–1

Chapter – 4

Chapter – 3

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Executive Summary

This report is an assigned job as a partial fulfillment of course requirement by honor

Course teacher M. Takibur Rahman Lecturer, Department of Accounting &

Information System, Faculty of Business Administration and Management.

Patuakhali Science and Technology University Dumki, Patuakhali. It is the

optimum aggregated outcome of 5 pupils’ about “Treatment of Overhead

Allocation in Determination of Seat Rent of ‘Abdul Wadud Memorial Hospital’

Khulna”.

In 1998, at the bank of Ruphsa River Abdul Wadud Memorial Hospital was opened

with 200 beds to help the people who are deprived of medical care. Now it is

continuing its service with its 200 general beds and 50 well equipped cabins with

the reputation of the biggest private hospital in Khulna Division. They generally

prepare income statement and balance sheet to justify their profit. According to our

study over overhead allocation, here we try to treatment the overhead allocation in

determination of seat rent of Abdul Wadud Memorial Hospital.

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Origin of the report

We are lucky to say that our honorable course teacher M. Takibur Rahman

Lecturer, Department of Accounting & Information System, of Faculty of

Business Administration and Management. Assigned us a report on

“Treatment of Overhead Allocation in Determination of Seat Rent of ‘Abdul

Wadud Memorial Hospital’ Khulna” This report is prepared on the basis of

surveying the Abdul Wadud Memorial Hospital.

Purpose of the Report

As a business expectative of future, we should have to gather experience

beside our survey. We should not concern our lesion only in classroom but to

implement it in practical life that will help us in our future life .A clear

objective help in preparation of well decorated report in which other take the

right type of decision .So, we identifying objectives is very much important.

Our purpose of preparing the report is:

►To know about the overhead allocation

►To identifying the Method of allocation of overhead costs

►To know about the Treatment of Overhead Allocation in Determination of Seat Rent.

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Limitations and Scope of the Report

As a student of faculty of Business Administration and Management, 5 th semester,

this is our first initiative for making a report on “Treatment of Overhead Allocation

in Determination of Seat Rent of ‘Abdul Wadud Memorial Hospital’ Khulna” by

meeting a survey. Beside this we have faced the following hindrances in preparing

this report:

► Lack of knowledge and experience

► Short of time

► Lack of computer facilities

► Lack of sufficient privileges

►Lack of communication facilities

The survey report focuses on Treatment of Overhead Allocation in Determination

of Seat Rent of Abdul Wadud Memorial Hospital. The survey may not be more

comparable or more valid. Moreover, the report is emphasized on the primary data

such as interview of the administrative manager of Abdul Wadud Memorial

Hospital. Here we consider only the information that we collect from our survey.

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Methodology of the Study

This report is based on both primary and secondary data. Initially, the work is

started with data those were available at hospitals’ news letter. Moreover, it

becomes helpful to gather some more information from the website of the hospital.

Later on, we have collected the data of balance sheet and income statement from a

faithful executive person of accounting department of Abdul Wadud Memorial

Hospital. According his providing data we the Group - 01 made our report on

treatment of overhead allocation in determination of seat rent of Abdul Wadud

Memorial Hospital. So, all the liability of accuracy of this assessment is gone over

his providing data.

Then we analyze those data from many angles, in different aspect and present the

information in different segment according to their category, in compact way. We

use weight of revenue for allocating the cost. We highlight different important

things, which we found during our survey. After doing all of those we submit the

report to the proper authority.

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Introduction

In business, overhead cost or overhead expense refers to an ongoing expense of

operating a business. The term overhead is usually used to group expenses that are

necessary to the continued functioning of the business but that do not directly

generate profits. Overhead expenses are all costs on the income statement except for

direct labor and direct materials. Overhead expenses include accounting,

advertising, depreciation, indirect labor, insurance, interest, legal fees, rent, repairs,

supplies, taxes, telephone, travel and utilities. Overhead allocation is one of the

more confusing and complex issues facing many businesses. Yet, figuring out how

to best determine overhead is very important to a firm’s profitability. While using

the direct method of cost allocation is simple, its simplicity makes it very inaccurate

and costly to the bottom line.

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Overview of Abdul Wadud Memorial Hospital

The general health status in Bangladesh is very weak and horrifying which is

natured by malnutrition, poor hygiene, and the lack of medical facilities. The people

in southwestern part of Bangladesh are neglected and less fortunate in many aspects

of their lives. The statistics are disheartening: only one hospital bed for every 3000

people, and one doctor for 5000 people. As a result, a lot of people die in every year

for lack of proper medical facilities. In 1998, at the bank of Ruphsa River Abdul

Wadud Memorial Hospital was opened with 200 beds to help the people who are

deprived of medical care. The hospital provides a full range of medical service

through its General, Eye, Mother & Child, Acid Burnt and Dental Units. Now it is

continuing its service with its 200 general beds and 50 well equipped cabins with

the reputation of the biggest private hospital in Khulna Division. The hospital staff

is comprised of qualified and skilled doctors, nurse, and supporting staff. The

hospital also operates satellite medical camps throughout the rural communities.

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Definition Overhead

Any expenditure which cannot be charged directly to any job, operation or process

may be called overhead. Thus, overhead indicates indirect expenditure of any kind.

It includes indirect material, indirect wages and indirect expenses.

Overhead has many other names such as overhead cost, overhead expense, indirect

cost, overhead charge, manufacturing and commercial expenses, non-productive

cost, supplementary expenses, supplementary etc.

In business, overhead, overhead cost or overhead expense refers to an ongoing

expense of operating a business. The term overhead is usually used to group

expenses that are necessary to the continued functioning of the business but that do

not directly generate profits.

Overhead expenses are all costs on the income statement except for direct labor and

direct materials. Overhead expenses include accounting, advertising, depreciation,

indirect labor, insurance, interest, legal fees, rent, repairs, supplies, taxes, telephone,

travel and utilities.

According to Eric L. Kohler— overhead cost is any cost of doing business other

than a direct cost of an output of production or services.

According to H.J. Wheldon— overhead represents the cost of indirect material,

indirect labor, and such other expenses including services as cannot conveniently be

charged to a specific unit.

Here, indirect materials reefer to material cost which cannot not be allocated to any

job or processes, but can be apportioned to or absorbed by jobs or processes.

Indirect labor/wages refer to wages other than direct wages, and indirect expenses are also expenses other than direct expenses.

Classification of Overhead

Overhead can be classified under the following four headings—

1. Function wise classification

2. Element wise classification

3. Behavior wise classification

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4. Control wise classification

1. Functional classification of overhead

In case of functional classification, overhead expenses can divided into two general

categories—

1.1. Factory overhead

Factory overhead is generally defined as indirect materials, indirect labor and

all other factory expenses that cannot conveniently be identified with nor

charged directly to specific jobs or products or final cost objectives, such as

government contracts. Simply stated factory overhead includes all

manufacturing cost except direct materials and direct labor linked with

manufacturing products or providing services.

2.2 Commercial overhead

Commercial overhead refers to those overhead which exclude all factory

overheads. These fall into selling distribution overhead and administrative

overhead. Selling and distribution overhead begins at the point where the

factory cost end, that is, when manufacturing has been completed and the

product is stable condition.

Sales mans’ salary and commission, window dressing expenses, advertisement

expenses (including fee, gifts, samples, exhibition etc.), travelers’ commission,

market research expenses, cost of after sales services, normal bad debts etc. are

examples of the selling overhead.

Godown expenses in connection with storing of finished products awaiting sale,

packaging charges, loading and unloading, freight (where it is not charged to

customers), insurances, maintenance and repair of delivery vans, salary of

deliverymen etc. are example of distribution overhead.

Administrative overhead includes expenses incurred in directing and controlling

the organization. Rent, rates, and taxes of administrative building, salary of the

staffs, office connected with general administration, depreciation of office

equipment and of building, postage, telephone, stationary, office expenses,

directors’ remunerations, bank charges etc. are examples of administrative

overhead.

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2. Element wise classification

If indirect expenses are classified element wise with come across three classes—

a. Indirect material

b. Indirect labor

c. Indirect expenses

Element wise classification may be done within each function or for all functions

taken together. The following are some examples.

a. Indirect material

Factory: consumable stores, jutes and cotton wastes, lubricating oil, fast and materials, fire-extinguishing material, stationary, canteen food stuff etc.

Administration: stationary, canteen food staff, cleaning materials etc.

Selling and distribution: packing materials, stationary, fuel and lubricating oil for delivery van etc.

b. Indirect labor

Factory: salary of foremen, supervisors, works manager etc., wagers of

maintenance and repairs staff, wages of indirect workers, wages of time office

and pay-roll department personnel, wages of stores staff etc.

Administration: salary of all employees of administrative function form

managing director down to sweeper, directors’ remuneration etc.

Selling and distribution: salary of sales office staff and distribution men.

c. Indirect expenses

Factory: repairs and maintenances, tent, rates and taxes, insurances, depreciation, stores expenses (other than salary of repairs staff, maintenance staff, and store staff) etc.

Administration: All expenses in connection with general administration (other than salary and material used) such as rents, rates and taxes, lighting, depreciation, printing postage etc.

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Selling and distribution: Godown rent, insurances, advertisement, depreciation, window dressing, exhibition, market research etc.

3. Behavior wise classification

The change in the volume of the production is the main consideration for behavior

wise classification. Expenses that remain fixed irrespective of the level of output

constitute fixed overhead; expenses that changes proportionately with the changes

in the level of output constitute variable overhead and expenses that change but not

proportionately with the change in the level of output constitute semi-variable

overhead or semi-fixed overhead.

Behavioral classification is of fundamental importance for the purpose of material

costing, for preparing flexible budget or standards and also for the purpose of

control of overhead costs. The following are the some of the examples of fixed,

variable, and semi-variables (semi-fixed) overhead costs:

Fixed overhead: rent, rates, insurance, postage, stationary, salary of management staff etc..

Variable overhead: indirect labor, indirect material, power, packing, travelers’ and

salesmen’s commission etc.

Semi-variable or semi-fixed overhead: Repair and maintenances, depreciation,

supervisors’ salary etc. Up to a certain level of production those items remain fixed:

but beyond that level they increase, but not in strict proportion. Thus, in the semi-

variable overhead are fixed elements and variable elements. These are to be

segregated to have only two classes— fixed overhead and variable overhead.

04. Control wise classification

Overhead expenses can be classified into two categories on the basis of control—

i. Controllable costs, and

ii. Uncontrollable costs.

i. Controllable costs

Overhead costs which can be controlled by the exercise of proper managerial

influence are known as controllable costs.

ii. Uncontrollable costs

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Overhead costs which cannot be controlled in spite of the best exercise of proper

managerial influence are known as uncontrollable costs.

Cost Categories Normally Included in a Firm’s Overhead Schedule

Accounting — costs incurred for staff accountants or outside accounting

vendors.

Administration — typically, salary costs of people not charging to any one final

direct project.

Annual Leave — vacation time paid to employees, officers, and owners.

Auto and Travel — costs for travel that are not project related.

Bad Debts — losses on projects due to write offs of billed uncollected costs

and/or unbilled costs.

Bonuses — incentive compensation

Business Taxes

Clerical Salaries — not charged direct to a project.

Computer Administration

Depreciation

Employee Insurance — medical, dental, life, disability, etc..

Employee recruiting — helps wanted advertising and interview expenses.

Holiday — all paid holidays observed by the firm.

Income Taxes — State income taxes are allowable.

Miscellaneous — any expense not included in another account.

Overhead — indirect business expenses not directly chargeable to a project.

Principals Salaries — not charged direct to a project.

Printing, Stationary — paper products not for promotional purposes.

Professional Services —general legal, accounting, management consulting, and

other services.

Rent — office and storage space costs, not charged direct to

a project.

Repair and Maintenance — services and minor repairs to office space and

equipment.

Sick Leave — costs paid by the firm normally associated for leave taken for illness,

injury, etc.

Social Security Taxes

Subscriptions and Publications

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Telephone — costs incurred not chargeable to direct projects.

Unemployment Taxes

Warranty Services — costs incurred for previously completed projects, or fees for

service contracts.

Abdul Wadud Memorial HospitalIncome Statement

For the Year Ended 31 December 2007

*All amounts are in taka

Expenses Revenues

Particulars Amount Particulars Amount

Salary of doctors

Salary of consultant

Salary of directors

Salary of officers

Wages of nurse

Wages of cleaners

Wages of MLF

Transportation expenses

Bonus

Generator bill

Electricity bill

Telephone bill

Water bill

Stationary expenses

Laboratory expenses

Food and nutrition

Cleaning cost

Depreciation expenses

Operation theater (OT)

expenses

VAT (2.25%)

Operating and maintenance of

machinery

Miscellaneous expenses

Tax

2,880,000

1,344,000

1,200,000

1,296,000

1,120,000

600,000

240,000

320,000

600,000

220,000

350,000

100,000

75,000

245,000

500,000

860,000

240,000

3,500,000

500,000

7,600,000

400,000

200,000

2,611,000

Seat rent

General bed

Cabin

(Less) vacancy allowance

Outdoor

Operation theater charge

Laboratory

Food and nutrition

Transportation

15,000,000

6,750,000

(2,250,000)

19,500,000

3,900,000

5,000,000

2,200,000

2,400,000

1,200,000

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Total expenses

Net profit

27,001,000

7,199,000

Total 34,200,000 34,200,000

Basis of Cost Allocation

All cost is allocated in the above table based on the revenues’ weight. The weighted

revenues are multiplied by specific cost then we get different cost under different head.

Such as Salary of officers, Salary of directors, Wages of cleaners, Bonus, Generator bill,

Electricity bill, Water bill, Stationary expenses, Cleaning cost, Depreciation expenses,

VAT (2.25%), Operating & maintenance expenses, Miscellaneous expenses and Tax

expenses are allocated on the basis of the weight of seat rent (general bed and cabin)

revenue, outdoor, operation theater (OT) charged, laboratory, transportations, food and

nutrition’s revenues. Which are as follows —

*All amounts are in taka

Categories of Revenues Amount WeightsSeat rent

GeneralCabin

15,000,0004,500,000

43.86%13.16%

Outdoor 3,900,000 11.40%Operation theater (OT) 5,000,000 14.62%Food and nutrition 2,400,000 7.02%Transportation 1,200,000 3.51%Laboratory 2,200,000 6.43%Total 34,200,000 100%

Wages of MLF expenses is allocated on the basis of the weighted revenues of seat rent

(general bed and cabin), outdoor, operation theater (OT) charged, and laboratory. Which

are as follows —

*All amounts are in taka

Categories of Revenues Amount Weights

Seat rentGeneralCabin

15,000,0004,500,000

49.02%14.70%

Outdoor 3,900,000 12.75%

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Operation theater (OT) 5,000,000 16.34%

Laboratory 2,200,000 7.19%

Total 30,600,000 100%

Salary of doctors, Salary of consultant are allocated on the basis of the weighted revenues of seat rent (general bed and cabin), outdoor, operation theater (OT) charged. Which are as follows —

*All amounts are in taka

Categories of Revenues Amount Weights

Seat rentGeneralCabin

15,000,0004,500,000

52.82%15.85%

Outdoor 3,900,000 13.73%

Operation theater (OT) 5,000,000 17.60%

Total 28,400,000 100%

Wages of nurse is allocated on the basis of the weighted revenues of seat rent (general bed and cabin), operation theater (OT) charged. Which are as follows —

*All amounts are in taka

Categories of Revenues Amount Weights

Seat rentGeneralCabin

15,000,0004,500,000

61.22%18.37%

Operation theater (OT) 5,000,000 20.41%

Total 24,500,000 100%

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Calculation of profit Margin for SeatCalculation of expense per seat

For calculating seat expense of bed, total expense is divided by the multiplication of effective day a year and number of beds.

Categories General Cabin

Overhead Expenses 8,507,238 2,553,709

Other expenses 2,916,781 875,248

Total expense 11,424,019 3,428,957

Number of seat Effective Working daysExpenses per seat

200300

50200

Calculation of profit per seatCategories General Cabin

Expense per bed 190.40 342.90

Other expenses 2,916,781 875,248

Total expense 11,424,019 3,428,957

Number of seat Effective Working daysExpenses per seat

Revenue from per seatProfit from per seat

Profit margin*

200300

250.00(250.00-190.40)

= 59.60= 23.84%

50200

450.00(450.00-342.90)

= 107.10= 23.83%

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* Profit Margin =

All amounts are in taka

The cost of per general seat of Abdul Wadud Memorial Hospital’s is taka 190.40

per day and against this cost they charged taka 250.00. As a result they earn taka

59.60 per day per bed as profit. The percentage of profit of Abdul Wadud Memorial

Hospital’s is 23.84% on the revenue of general bed. So, from the seat rent Abdul

Wadud Memorial Hospital earn taka 3,575,981 per year. This source is the major

source of their earnings, because from this source they earn 23.84% whereas gross

profit is 21.05%.

Side by side they have also comfortable cabin. They provided extra facilities to the

cabin. For this reason they spend more that is Taka 342.90 per cabin per day.

Against this cost, Abdul Wadud Memorial Hospital charged Taka 450 per cabin per

day and they earn taka 107.10 per day per cabin as net profit. The profit is 23.83%

of revenue. Here we also find that Abdul Wadud Memorial Hospital use cabin for

higher rate of profit (23.83%) whereas gross profit is 21.05% of total cost.

From above discussion, it is clear that seat rent is the major source of earning of

Abdul Wadud Memorial Hospital. Both general seat and cabin gives higher rate of

profit. They simply think that more site is filled up by patient will increase higher

rate of profit.

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Calculation of Profit Margin for Other Sources *All amounts are in taka

Categories Expenses Revenues Net profit Profit margin*

Outdoor 2,892,173 3,900,000 1,007,827 25.84%

Operation Theater 4,309,161 5,000,000 690,839 13.82%

Food and Nutrition 2,245,537 2,400,000 154,463 6.44%

Transportation 991,439 1,200,000 208,561 17.38%

Laboratory 1,747,766 2,200,000 452,234 20.56%

*Profit Margin =

Calculation of Gross Margin of Abdul Wadud Memorial Hospital

Profit Margin =

=

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Summary

Summary of Cost Allocation and Profit of Abdul Wadud Memorial Hospital at a Glance in Case of Seat Rent

Number of Seat : General 200 and Cabin 50 *All amounts are in taka

ExpensesRevenues Profit

Total Seat Total Seat Total Seat

General Cabin General Cabin General CabinOverhead 11,060,947 8,507,238 2,553,709 19,500,000 15,000,000 4,500,000 4,647,024 3,575,981 1,071,043

Other 3,792,029 2,916,781 875,248

Total 14,852,976 11,424,019 3,428,957 19,500,000 15,000,000 4,500,000 4,647,024 3,575,981 1,071,043

Per seat Profit- Margin

190.40 342.90 250.00 450.00 59.60

23.84%

107.10

23.83%

From the above table we see that, in this hospital the per seat expenses for general

bed is tk.190.40 and for cabin is tk.342.90. Against these expenses for per seat is

tk.250 for general bed and tk.450 for the cabin. As a result profit per seat tk.59.60

for the general bed and tk. 107.10 for the cabin. In here we also found that, the rate

of profit of both general and the cabin are almost same, but they earn more in cabin

per day rather than the general beds.

The hospital also has other five source of revenue, which are- outdoor, operation

theater (OT), food and nutrition, laboratory and transportation. Here we find that

profit form outdoor is highest rate (25.84%). The earning form operation theater is

13.82%, from food and nutrition 6.44%, from transportation 17.38%, and from

laboratory 20.56%. But we found that every sector earn with a good rate except the

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food and nutrition sector. Because they consider that providing notorious food with

lower cost is a part of their service.

Recommendation

The Abdul Wadud Memorial Hospital is the one of the familiar private hospital in

Khulna division. The hospital’s management is committed to provide the general

people the world class health service through in less expensive way. We think if

they follow the following recommendation, then they will be benefited according to

our opinion.

We allocate the overhead cost on the basis of weighted revenue. Through our

calculation we found that profit margin of general seat is 23.84%, whereas gross

profit is 21.05%. We think that as a service related organization this profit margin is

all most satisfactory. So we can say that general seat is the major source of their

earnings and we also find that most of the times here stay the crisis of general bed.

So the authority of ‘Abdul Wadud Memorial Hospital’ should increase their number

of general beds with same level of facilities.

In case of cabin, cost per seat is 342.90 taka against revenue 450.00 taka. So they

earn 107.10 taka profit per cabin. But on an average in an effective year 100 days is

vacant. According to our opinion if the authority reduces their revenue per cabin,

then their number of vacancy day may be reduced. As a result the total amount of

profit may be increase.

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Conclusion

Overhead represents the cost of indirect material, indirect labor, and such other

expenses including services as cannot conveniently be charged to a specific unit.

Here, indirect materials reefer to material cost which cannot not be allocated to any

job or processes, but can be apportioned to or absorbed by jobs or processes.

Indirect labor or wages refer to wages other than direct wages, and indirect

expenses are also expenses other than direct expenses. Service departments are

organized to provide some needed service in a single, centralized place, rather than

having all units within the organization provides the service for them. Service

department costs are charged to operating department by an allocation process. In

terms, the operating department includes the allocated costs, form which overheads

are computed for purpose of costing product and services.

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References

Horngren C.T., Foster G. and Datar S. M. (1999). Cost Accounting, 10th edition,

Prentice Hall New Delhi-11001, pp.566-591.

Garrison Ray H., Noreen Eric W., and Brewer Peter C. (2007- 2008). Managerial

Accounting, 11th edition, McGraw- Hill Irwin.pp.716-730.

Jamal, Md. Mahmud, Administrative officer, Abdul Wadud Memorial Hospital

Rony K. Krishno, Administrative officer, Abdul Wadud Memorial Hospital