GLOSSARY OF ACCOUNTING TERMS 377
Overhead allocation The process of spreading production overhead
equitably over the volume of production of
goods or services.
Overhead rate The rate (often expressed per hour) applied to
the time taken to produce a product/service,
used to allocate production overheads to
particular products/services based on the time
taken. May be calculated on a business-wide or
cost centre basis.
Payback A method of investment appraisal that calculates
the number of years taken for the cash flows
from an investment to cover the initial capital
outlay.
Period costs The costs that relate to a period of time.
Planning, programming
and budgeting system
(PPBS)
A method of budgeting in which budgets are
allocated to projects or programmes rather than
to responsibility centres.Prepayment A payment made in advance of when it is
treated as an expense for profit purposes.
Prime cost The total of all direct costs.
Priority-based budget A budget that allocates funds in line with
strategies.
Process costing A method of costing for continuous manufacture
in which costs for an accounting compared are
compared with production for the same period
to determine a cost per unit produced.
Product cost The cost of goods or services produced.
Product market A business’s investment in technology, people
and materials in order to make, buy and sell
products or services to customers.
Product/service mix See sales mix.
Production overhead A general term referring to indirect costs.
Profiling A method of budgeting that takes into account
seasonal fluctuations and estimates of when
revenues will be earned and costs will be
incurred over each month in the budget period.
Profit The difference between income and expenses.
Profit and Loss account A financial statement measuring the profit or
loss of a business – income less expenses – for an
accounting period.
Profit before interest and
taxes (PBIT)
See EBIT.