Q.What is codification of overheads? State its advantages.

In a factory with hundreds of overhead items, referring to each by its full description is slow and error-prone, so each item is given a short code instead.

Codes may be straight numbers, block/decimal codes (a range per group), mnemonic letters or alpha-numeric combinations, and a good scheme is simple, flexible and unique.

Meaning. A factory incurs hundreds of separate overhead items every month, and recording each by a long description ('depreciation of grinding machine in the machine shop') is clumsy and error-prone. Codification is the technique of allotting a short, systematic code number or symbol to every item and group of overhead, so that each can be identified and grouped by its code rather than by its full name.

Methods of codification (mentioned for completeness):

• Straight numbering — 01, 02, 03 … in sequence.
• Block / decimal codes — a range of numbers reserved for each group (100–199 factory, 200–299 administration, 300–399 selling), so the first digit itself shows the function.
• Mnemonic (alphabetical) codes — letters that suggest the item, e.g. 'REP' for repairs, 'DEP' for depreciation.
• Combination (alpha-numeric) codes — letters and numbers together, e.g. 'F-101'.

Advantages of codification:

1. It makes recording and collecting overhead quick and cuts clerical work.
2. It avoids confusion between items with similar descriptions.
3. It groups related items automatically, so analysis and reporting are easier.
4. It suits mechanised and computerised cost accounting, where short codes process far faster than long descriptions.
5. It keeps records concise and helps fix responsibility for each type of expense.

A good codification scheme should be simple, flexible (able to take in new items) and unique — no two different items should share a code.

Students sometimes confuse codification with classification — classification decides which category an item belongs to (fixed, factory, etc.), whereas codification simply gives each item a short code for easy recording. Both can be used together, but they are different steps.