Overhead Management and Defense Contracts: Cost Analysis Report

This report provides an analysis of overhead management within the context of defense contracts. It begins by defining the elements of overhead costs, categorizing them into indirect materials, indirect labor, and other indirect expenses. Indirect materials are those not directly traceable to a finished product, such as lubricants and cleaning supplies. Indirect labor refers to workers not directly involved in production, including supervisors and maintenance staff, whose wages are allocated across cost centers. Other indirect expenses encompass costs like insurance, utilities, and depreciation, which cannot be directly linked to a specific product or cost center. The report references sources to support the concepts of overhead management and cost accounting within defense contracts.

Running head: OVERHEAD MANAGEMENT AND DEFENSE CONTRACTS
Overhead Management and Defense Contracts
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OVERHEAD MANAGEMENT AND DEFENSE CONTRACTS
LO2: Explain the elements of cost in overhead
The elements in the overhead cost are much significant in the financial accounting field.
The classification of the overhead cost is based on the components or the elements, such as
indirect labour, indirect expenses, and indirect materials. In other words, this classification is
termed as the classification of overhead that is based on the nature or sources. The elements of
the overhead cost are described as further:
 Indirect Materials
Spence and Rinaldi (2014) explained that indirect materials do not form the part of any
finished products. Therefore, these materials cannot be traceable or identified to a particular cost
centers or cost units. For example, the costs of the cotton waste, lubricants, and materials used in
the service departments are considered as the indirect materials.
 Indirect Labours
The indirect labours are not involved directly to the production process. They receive wages and
they can be apportioned to a number of cost centers (Schaltegger & Zvezdov, 2015). The
workers of service departments, watch-man, supervisors, or sweepers are known as the indirect
labours.
 Other Indirect Expenses
The indirect expenses are excluded from the amount that is paid for the indirect materials and
indirect labours. This type of expenses cannot be traced to any product cost centers or units
(Spence & Rinaldi, 2014). For example, the insurance bills, lighting, telephone charges,
depreciation, and office salaries are some of the indirect expenses that are to be afforded.

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OVERHEAD MANAGEMENT AND DEFENSE CONTRACTS
References
Schaltegger, S., & Zvezdov, D. (2015). Expanding material flow cost accounting. Framework,
review and potentials. Journal of Cleaner Production, 108, 1333-1341.
Spence, L. J., & Rinaldi, L. (2014). Governmentality in accounting and accountability: A case
study of embedding sustainability in a supply chain. Accounting, Organizations and
Society, 39(6), 433-452.