percentae

basis as
ona
allotted
AatatiDeyartments
follows :
4.42
Serne
The
ernenses
Denartment
are

40
C
15
25
Service Depo
30
areto be charged to
SenieDepartmentsF Departments
method.
ServiceDeatments0 simultaneousequations
Serve

Showhow
enensesaf
thetmoand
tistributionmethod
the
repeated
(B.Com., bons
under
Method
Solution: Distribution OVERNEAD DISTRIBUTION SUMMARY
Repeated SECONDARY ProductionDeptts.
(e)

Items
Seni
6,00,000 5,00,000
6.50.000
36,000
48,000 1,20,000
18,000 |(-) 1,20,000
Sunmay 35,400 29,500
Totatsasner
Pimary
ServiceDerartments?
47,200
1,770
2,360 885 5,900 (}1
(-) 5,900
Sernce Derartments 266 221
354 44
Service Denartments
13
18 ()4
Serice DepartnentsQ 1
3
Service Dezgartments 6,86,046 5,48,614
Servne Departmemts 735,340
itself gives only approximate results.
Totais avoided as this method Equations'
Notes. i. actions have been soive this problemby
"Simultaneous methods and te
advisedto
2. Students are
this answer.

Simutaneous EquationsMethod
(E) Serice Deptt. P
iet Ie Orehead of Dept. 0
Y- Orerhead of Service
I- 1.20,000 +5% of Y
I" 1.00,000+ 15% of X
I120,000 +0.05 Y

Ye 1,00,000 + 0.15 X
I- 0.05 Ye 1,20,000
-0151+Y= 1,00,000
Mutipiying equztion (i) by O.05 and add
1-0.05 Y =1,20,000
-0.0075 X+0.05 Y 5,000
0.9925 X 1,25,000
-1,25,94.58
Substituting the value of Xin equation ()
1,25,944.58 -0.05 Y1,20,000
Y 1.18,891.60
Thus Overhead of Deptt. P
={125,944.58 or 1.25,945 (approx.)
Overhead of Dept. Q= 1,18,891.60 or
1,18,892 (approx.)
Overheads
4.43

SECONDARY OVERHEAD DISTRIBUTION

sUMMARY
A
Production Departments
Distribution
Total as per Primary 6,50,000
Overheads of Deptt. P 37,783
6,00,000 5,00,000
(30%, 400% and 15% of 1,25,945) 50,378 18,892
Overheads of Deptt. Q 47,557
(40%, 30% and 25% of 1,18,892) 35,668 29,723
Total
7,35,340 6,86.046 5,48,615
Problem 4.4
Mhe company is having three
boiler-house and pump-rOom. The
production departments A, Band Cand two service
boiler-house has to depend upon the
pump-room
departments
and pump-room in its turn is dependent on the for supply of water
boiler-house for the supply of steam power for driving
the pump. The expenses incurred by the production
A 4,00,000; B:?3,50,000; and C:2.50.000departments are :
The expenses for boiler-house is ? 1,17,000 and
the pump-room is 1.50.000.
The expenses of boiler-house and
the following basis: pump-room are apportioned to the production departments on
A B
Expenses of boiler-house 20%
Boiler-house Pump-room
40% 30%
Expenses of pump-room 40% 10%
20% 20% 20%
Show clearly as to how the expenses of boiler-house and pump-room would be
and Cdepartments ? apportioned to A, B
(C.S. Inter)
Solution

SECONDARY OVERHEAD DISTRIBUTION sUMMARY

(Repeated Distribution Method)
Particulars
Production Deptts. Service Deptts.
C House Boiler Pump Room
Rs
Expenses incurred 4.00,000 3,50,000
Boiler-house 2,50,000 1,17.000 1,50.000
23,400 46,800
Pump-room 35,100 (-) 1,17,000 11,700
64,680 32,340 32,340
Boiler-house 32,240 (-) 1,61,700
6,468 12,936 9,702
Pump-room (-) 32.340 3,234
1,293 647 647
Boiler-house 129 259 194 (-) 647
647 (-) 3,234
Pump-room 26 13 13
65

Boiler-house 4 5
13 (-) 65
Total ( 13
4,96,000 4,43,000 3,28,000
Note. Students are advised to solve this problem by
produces the same answer. Simultaneous Equations Method and see that it
 4.44
production de)partment A, B
and C
Company hasthree forfeb. 2004
:
and ty
Manufacturingfollowingisthebudget
Problem 4.5
X
Indian Y The
departmentsXand Total 4,000
2.000
1.000 8,000 2,000
5000
2.000
1,000
Direct materials
Direct wages 4,000
Factory rent 2500
Power 1000
Depreciation 9.000
Other overhead
as under: C
information is qiven B
Additional 500 250
500
250
20 10
40
20
Area sq. ft 4,000 1,000
Assets lakhs) 2,000
Capitalvalue of
1,000 20
40 15
Machine hours 50
machunes costs of service departments is as
House powe: of apportionment of the under :
assessment for B
C X
Atechnical A
30%
15%
45%
5%
Service Department X 60% 35%
and re-distribute service
Service Department Y
overheads to various departments
You are reguired to
distribute
compute machine hour rates foI production AE departments
department. Also (B. Com., Calicut, CA
costs to prOduction

Solution : OVERHEAD DISTRIBUTION STATEMENT

Total Production Deptts. Service De

Item Basis of B X
cpportionment
2,000
Direct materials Actual 3,000
1,000
Direct wages Actual 3,000 500
4,000 1,000 500 1,000
Factory rent Area sq. ft. 800 150
HP. M. hours 2,500 500 800
Power 50
Capital values x M.hours 1,000 100 400 400
Depreciation 500
Other overheadsD. wages 9,000 2,500 1,000 4,000
6,200 4,200
Total 22,500 4,100 2,700
630 1,260 (-)4,200
1,890 286 (-6
3,432 2,002 () 286
128 43 86
18 11
Total (A) 7,546
22,500 9,568 5,386
Machine hours (B)
Machine hour 1,000 2,000 4,000
rates (A + B)
9.57 2.69 1.89
Overheads
4.45

Notes:
1. Costs of
service departments XandYhave been distributed by
2. Power has
been apportioned on thebasis of H.P. Machine hours.Repeated Distribution Method.
hours may also be taken as the basis of However, either H.P. or machine
apportionment.
riation has been apportioned on the basis of capital values *
capital values or machine hours may also be taken as the basis machine hours. However, either
of
apportionment.
Problem 4.6
Acompany hasthree production cost centres A, Band Cand two service cost centres Xand YCosts
allocated to centres are required to be apportioned to the
service
different products. production centres to find out) cost
ofproduction of
that benefit of service cost centres is
It is found also received by each other along with the
production cost centres.
Overhead costs allocated to the five cost centres and estimates of benefit of
each of them are as under: serice cost centres
received by
Cost Centres Overhead Costs as alloca ted Estimates of Benefits received from
(Rupees) Service Centres

A 80.000
20 20
B 40.000 30 25
C 20,000 40 50
X 20,000
5
10.000 10
Reguired : Work out final overhead costs of each of the production
annortioned cost of service centres using (a) Continuous distribution departments including re
equation method. method and (b) Simultaneous
(Adapted)
(A) SECONDARY OVERHEAD DISTRIBUTION SUMMARY
(Repealed or Continuous Distribution Method)
Particulars
Production Deptts. Service Deptts.
A B C X

Overhead costs 80,000 40,000 20,000 20,000

Overheads ot X 4,000 6,000.
10.000
Overheads of Y 8,000 ( 20.000 2.000
2,400 3,000 6.000
Overheads of X 120
600 (-) 12.000
180. 240
Overheads of Y 12 15
() 600
30
Overheads of X 1
60
1 (-)3
Final Overhead Cost of (-) 60
Prod. Deptt. 86,533 49,196 34,271
 0 Simultaneous
Eouath
5%y
4.46
0 0 0+0 x
10%
a - 10000
+
Oreshead
Y=
af
Cverhead
20
by
ye10000+ equatons
0100

above
both
Mrltinly

20=200000
+ax
and
20
then adding
by
()
equation
20
the
Multijy80,00000+
00,000
400 = 80
=
2 0 = 200000
400-
or = 8,00,000
(overheads of X)
20,603
3081
398= =12,060
8200,000+ 20,603)
(Overhead of Y)
t= (010x SECONDARY OVERHEAD DISTRIBUTION SUMMARY
+
10000
J= (SimutaneousEquation Method)

Production Departmets
B

80,000 40,000
Overheadcosts 90%of20,603 4,121 6,181
OrerheadsofI 95%of12,060 2,412 3,015
OverheadsafY
86,533 49,196
Production Dept.
Overheadcostof

Problem 4.7
production departments. Service departmet-
Madras Manufacturing Ltd. has three "Step Ladder Method" of distihuhe
the
distributed to these production departments using department in the forthcoming vea z
of factory owerhead costs to be incurred by each department:
Data requised for distribution is also shown against each
Derartment Factory Overhead Direct Labour No. of
Hours Employees
Producton :
100
1.93,000 4,000
64,000 3,000 125
83,000 85
Serice:
4,000
P
45,000 10
1,000
75,000 50
5,000
S 1,05,000 6,000
40

he overhead costs of 30,000

50 order
3,000 Same
and S
respectively on the ftheol owifourng bases
service departments are distributed in the
:
 verheads
4.47

Department
P
Basis
Number of employees
Direct labour hours
Area in square metres
S
Direct labour hours
Hos are required to prepare a schedule showing the
distribution of overhead costs of the four
ervice departments to the three production departments.
iolution :
Conice department P is the most serviceable department, i.e., it
umber of production as well as other service departments. It does not renders
receive service to the
any service fromlargest
other
ee departments. Therefore, cost of ? 45,000 of service
departments P is apportioned to all other
lepartments in the ratio of number of employees. The next most
nders its services to all other departments except P. Therefore, its serviceable department
cost of 80,000, is Qwhich
i.e., 75,000 +?
: 000 apportioned share of Deptt. P is apportioned to all departments except
service
Chen R department's cost is apportioned to all departments except P and Q and department
P.
lastly cost of
anartment S is apportioned to only production departments. 0verhead distribution summary is thus
prepared as follows :
OVERHEAD DISTRIBUTION SUMMARY
tems Basis of Service Deptts. Production Deptts.
apportionment P S Y 7

Overhead costs 45,000 75,000 1,05,000 30,000 1,93,000 64,000 83,000

Cost of Deptt. 'P No. of employees ( 45,000 5,000 4,000 5,000 10,000 12,500 8,500
Cost of Deptt. "a Labour hours (-) 80,000 24,000 12.000 16,000 12,000 16,000
Cost of Deptt. 'RArea -(-) 1,33,000 19,000 57,000 28,500 28,500
Cost of Deptt. 'S Labour hours (-) 66,000 24,000 18,000 24,000
"otal 3,00,000 1,35,000 1,60,000

Note: Students should note that in the Service Deptts. column, 'steps' are formed. This is the reason
why method is known as 'Step Ladder Method.

Problem 4.8

The following particulars relate to processing machine treating a typical material:

(a) Cost of machine 10,000
(b) Estimated life-10 years
(c) Scrap value-- 1,000
(a) Yearly working time (50 weeks of 44 hours each) - 2,200 hours
(e) Machine maintenance 200 hours p.a.
() Setting up time estimated at 5% of total productive time and is regarded as productive time
(9) Electricity is 16 units per hour at 10 paise per unit
(h) Chemical required weekly 20
() Maintenance cost per year -1,200
) Two attendants control the operations of machine together with 6 other machines. Their combined
weekly wages are 140
 4.48

Departmental overhead
allocatedtothis machine per
machine hour
rate.
annum 7
2,000 Cost ArR
(k) calculate the (B.
You are
required to Com.,
Solution: CALCULATION OF MACHINE HOUR
RATE Delhi, Ba

Per year

Standing Charges
1. Department overhead
140 x 50
2,000
2. Attendants' wages
7 1,000
3,000 + 2,000 hrs.) 3,000
Standing charges per hour (?
Operating Charges
10,000 -1,000
1. Depreciation 2,000 x 10

2. Maintenance (1,200 2,000)

20x 50
3. Chemicals
2,000
4. Power (16 units @ 10 paise per unit)
Machine Hour Rate

Working Note: Calculation of effective hrs.

Total machine hour (50x 44) 2,200
Less : Maintenance hours 200

Efective working hrs. 2,000

As setting up time is given as productive time, it is not deducted in calculating effective hours
Problem 4.9
From the following particulars compute Machine Hour Rate :
ACost of machine 1,14,800
5,400
Installation charges
Anticipated life of machine 10 years 5,000
Residual value at the end of 10 years
Rent and rates per annum 12,000
3,000
Insurance of the machine p.a.
8,640
Repairs and maintenance p.a.
1,200
Consumable stores p.a. 1,080
Total production services p.a.
Power cost is 5 units per working hour @40 paise
Setting up tÉme (Non-productive) 400 hrs p.a. per unit
(B.Com,
There are 300 working days of eight
hours each in a year.
 4.49
Overheads

Solution
COMPUTATION OF MACHINE HOUR RATE
Standing Charges: Per year Per hour

Rent and rates 12,000

Insurance 3,000
Repairs and maintenance
8,640
Consumable stores 1,200
Production services 1,080
Total 25,920
charges per hour ( 25,920, 2,000 hrs.)
Standing ch 12.96
Running Charges:
Depreciation
(1,14,800+ 5,400 -5,000
10 x 2,000 5.76
unit)
Power cost (5 units @ 40 Paise per 2.00
Machine Hour Rate 20.72

Note: Calculation of effective working hours

Yearly hours (300 x 8) 2,400
Less: Setting up time (Non-productive) 400
Effective hours 2,000

Problem 4.10
Erom the data qiven below, calculate the machine hour rate : Per annum

Rent of the department (space occupied by machine 1/5th of the department) 780
Lighting (number of men in the department 12, two men engage on this machine) 288
Insurance, etc.
36
Cotton waste, oil, etc.
60
Salary of foreman (one-fourth of the foreman's time is occupied by
this machine and the remainder equally by the other two
machines) 6,000
The cost of the machine is 9,200 and it has an
estimated scrap value of? 200.
It is ascertained from past
experience
() that the machine will work for 1,800
hourS per annum;
() that it will incur an expenditure of 1,125 in
(m) that it consumes 5 units of power per hour at the
respect of repairs and maintenance;
cost of 16 paise per unit, and
(v) that the working life of the machine will be
18,000 hours.
(B. Com., Mysore; Delhi)
 4.52

Solution :
hours are not givenin the problem. These are calculated as
Cost etu
working
Annual
Total amount of
power consumed
Rate of pOwer (10
units @5 paise) 0.50)
-3,000
-50 paisehrs.an
-6,000
folhourows:
the machine (3,000
Total working hours of =5
No. of machines =
5)
Working hours per machine
(6.000 1,200 hrs per year
cOMPUTATION OF MACHINE HOUR RATE

Particulars Per annum

Standing Charges:
of R4,800)
(a) Rent and rates( 1/5th
(b) Lighting charges (1/5th
of R540) 960.00
108.00
(c) Attendant's salary for machine (1/5th ofR 1,440)
(d Supervision per machine (1/5th of R 3,000) 288.00
(e) Sundry suppies per machine (1/5th of 450) 600.00
90.00
Hourty rate for standing charges (? 2,046 + 1,200 hrs.) 2,046.00
Variabie Charges:
(a) Depreciation (500 + 1,200 hrs.)
(5) Repairs and maintenance (200 1,200 hrs.)
(c) Power (10 units of power @5 paise per unit)
Machine Hour Rate
Note. Interest on hire-purchase instalment has not been included while
Hire-purchz2se instalment is also not included because it is a capital item. computing machine hour rat
Problem 4.13
Adepartment is having 3 machines. The figures indicate the department expenses. Calculate t
machine hour rate in respect of these machines from the information given below :
Depreciation of mactine 12,000 Indirect wages 6.0
Depreciation of building 2,880 Power 6,0
Repairs to machinery 4,000 Lighting
Insurance of machinery 800 Miscellaneous expenditure 4,20

MachineI Machine II Machine

Direct wages ? 1,200 72,40
Power units 7 2,400
30,000 20,0
Number of workers 10,000
Light points 24
Space 800 sq4.1
Cost of Machine 400 sq. ft. 800 sq. ft. 71,80,0
Hours worked ? 3,00,000 ? 1,20,000
200 300
(B.Com., Madhus
 4.53

Overheads

Solution:
cOMPUTATION OF MACHINE HOUR RATE
Basis of Total Machine Machine Machine
Apportionment III
S.Items
Machine value 12,000 6,000 2,400 3,600
Depreciationofmachinery
No.
Depreciationofbuilding 2,880 576 1,152 1,152
Space
1. Machine value 4,000 2,000 800 1,200
Machinerepairs Machine value 800 400 160 240
2.
3. Insurance Direct wages 6,000 1,200 2,400 2,400
4 Indirect wages Power units 6,000 3,000 1,000 2,000
80 240 480
5
Power Light points 800
6. |Lighting
7. 4,200 840 1,680 1,680
o Miscellaneous expenses Direct wages
36,680 14,096 9,832 12,752
(A) Total 300 300
200
worked (B) 32.77 42.51
(B) Hours hour rate (A + B) 70.48
2,400
IC) Machine 1,200 2,400
(D) Direct wages 6 8 8
B)
per hour (D
Direct wages Machine 76.48 4077 50.51
(E)
Comprehensive Hour Rate (C + E)

Problem 4.14
:
following information is made available from the costing records of a factory 7 1,00.000
The
of the machine
(i) The oiginal cost 10years
Estimated life
5,000
Residual value
week 52 weeks in a year
Factory operates foI 48 hours per
may be allowed as setting up time.
Allow 15% towards machine maintenance downtime. 5%
per hour at a cost of 50 paise per unit.
() Electicity used by the machine is 10 units
500 per month.
(iüi) Repairs and maintenance cost is
operation along with two other machines. Their total
(iv) Two operators attend the machine during
wages, including fringe benefits, amount to 5,000 per month.
(v) Other Overheads attributable to the machine are 10,431 per year.
(B. Com., Hons., Delhi)
Using the above data, calculate machine hour rate.
Solution
Calculation of effective working hours:
2,496
Total hrs. (48 x 52 weeks) 374
Less : 15% machine maintenance
125
5% setting up time 499
1.997
Effectove hours
4.54
Rate
Computation of Machine Hour

Standing Charges :
Overhead (per an um
5000 x 12
10 431
Wages of operators 3

30,431 1.997 hrs.)

Standing charoes per hour (?
Variabie Charges :
301524491
1.00.000 -5.000
Depreciation 1997 hrs. x 10 yrs.
5000 x 12
426
Repairs and maintenance 1997

Electnicity (10 x Re. 0.50)

3.00
Machine Hour Rate 5.00
28.00
Problem 4.15
value is nil.
Work out the Mactine Hour Rate for the following machine whose scrap

Cost of machine 1,90,000 Repairs and maintenance 40% of depreca:

Freight and installation charges 10,000 Annual power expenses
Working ife 5 years @ 25 paise per unit 6.0
Exght houriy day charges :
(1) Power 24 (2) Lubrication oil
(3) Corsumabie stores 28 (4) Wages
(B.Com. Hons. De:
Solution
cOMPUTATION OF MACHINE HOUR RATE
Standing Charges : Per hour?
Lubricating oil ( 20 + 8 hrs.) 2.50
Consumable stores (? 28 + 8 hrs.) 3.50
Wages (? 80 + 8 hrs.) 10.00
Total standing charges 16.00
Variable Charges :
1,90,000+ 10,000 20.00
Depreciation
5 years x 2,000 hrs.
8.00
Repairs and maintenance (40% of 20
3.00
Power (? 24 + 8 hrs.)
47.00
Machine Hour Rate
"Calculation of working hours per year:
 4.55
overheads
2
hOurs
per8 -724 + 8 - 3
Eower bill perhour
cost year - 6,000 +3 - 2,000 hrs.
Power per
of
hours
No.
Problem
4.16
Enterprises undertake three different jobs A, Band C. All of them require the use of a special
a computer. The computer is hired and the hire charges work out to ?4,20,000
A. K.
andalso
the use of
regarding
machine
expenses the machine are estimated as follows:
annum.The
per
quarter 17,500
Rent for the
Depreciation per annum 2,00,000
annum 1,50,000
Indirect charges per
first month of operation,the following details were taken from the job register:
Duringthe B

JobA machine was used :

hours the
Number of Computer 600 900
Without the use of the
la) Computer 400 600 1,000
of the
(b) With the use
requiredto compute the machine hour rate for the firm as a whole for the month (a) when the
You are the computer was not used. (CA. Inter)
was used, and (b) when
computer
Solution: Computation of Machine Hour Rate
Per Month Per Hour

months) 5.833.33
Rent ( 17,500+3 months) 16,666.67
Depreciation ( 2,00,000 + 12 12,500.00
months)
Indirect Charges ( 1,50,000 + 12
35,000.00
Total
( 35,000 + 3,500 hrs.) 10.00
(a) Machine Hour Rate (without the use of computer) 35,000
Computer hire charges ( 4,20,000 + 12 months) 17.50
(Computer hire charges per hour are 35,000 + 2,000 hrs.)
27.50
(6) Machine Hour Rate with the use of computer
Notes:
Total machine hours when computer is used = 400 + 600 + 1,000 = 2,000
Total machine hours when computer is not used = 600 + 900 = 1,500
Total machine hours = 1,500 + 2,000 = 3,500.

Problem 4.17
the month of June.
Folowing particulars related to the production department of a factory for
80,000
Material used
72,000
Direct wages 20,000
Direct labour hours worked
Hours of machine operation 25,000
90,000
Overhead charges allocated to the department
 4.56
in
work order carried out the above
department Cost het
Cost data of a particular
below:
Material used
Direct wages
{ 8,000duing June
Labourhours booked
Machine hours booked {6,3,235000
What would be the factory Cost of the work order under the
2,400
overheads.
() Direct labour cost rate; (i1) Machine hour rate ; and (ii) Direct labourfol owihhourng methods of
rate.
Solution :
Computation of Factory Overheads Rates: (B. Com
() Direct Labour Cost Rate: Overhead
x 100 90,000
Direct wages 7 72,000 x 100 = 125%

() Machine Hour Rate : Overhead

90,000
No. of machine hours 25,000 hrs. =3.60 per hour,
Overhead
(i) Direct Labour Hour Rate : 790,000
No. of labour hours =
20,000 hrs. 4.50 per hour.
STATEMENT OF FACTORY COST
Direct labour cost rate Machine hour rate
Direct labour hour tC;
Direct material 8,000 8,000 8,000
Direct wages 6,250 6,250 6,250
Prime Cost 14,250 14,250 14,250
Factory overhead:
() 125% of 6,250 7,812.50
(ii) @3.60 for 2.400 hrs. 8,640
(iii) @? 4.50 for 3,300 hrs. 14,850
Factory Cost 22,062.50 29,100
22,890
Problem 4.18
A company absorbs production overheads on the basis of pre-determined machine hour rate k
the month of March the budgeted machine hours were 8,500. During the month the actual machi
of? 146
hours worked were 7,928, actual
overheads were 1,46,200 and there was under-absorption De
Ascertain the budgeted level of overheads for the (B.Com.
Hons
month.
 4.57

Dverheads

Solution
Absorbedoverhead - Actual overhead - Ünder absorbed overhead
-?1,46, 200- 7,460 - 1,38,740
1,38,740
-17.50
Machinehourrate 7,928 hrs.
hrs.
machine hours 8,500
Budgeted 8,500 @? 17.50 =?1,48,750.
levelof overheads
Budgeted

Problem4.19
productionfor a particular work order is 20 units
per day and piece rate wages is 60 paise per
Standardproductionis 20 units or more. The rate is 50 paise per unit if production is less than 20 units
if daily materials is 30 paise per unit. It is proposed to charge factory
overhead under one of the
Cost of
perday. methods:
following
cost, (i) 80% on prime cost.
100% on labour
() statement and indicate the factory cost per unit under
the above data in the form of a suitable
Tabulate
above methods if the
daily production is :
eachof the
units.
20 units, (c) 25
(a) 15 units, (b)
Solution
are charged at 100% on labour cost
When factory overheads
STATEMENT OF COST
15 20 25
day)
(A) Production (units per
4.50 6.00 7.50
Materials (@ 30 paise. per unit) 12.00 15.00
Labour cost 7.50
Prime Cost 12.00 18.00 22.50
Factory overhead 7.50 12.00 15.00
(B) Factory Cost 19.50 30.00 37.50

Factory cost per unit (B + A) 1.30 1.50 1.50

(ü) When factory overheads are charged at 80% on prime cost

Statement of Cost
(A) Production (units per day) 15 20 25

Materials (@ 30 p. per unit) 4.50 6.00 7.50

Labour cost 7.50 12.00 15.00
Prime Cost 12.00 18.00 22.50
Factory overhead 9.60 14.40 18.00
(B) Factory Cost 21.60 32.40 40.50
Factory cast per unit (B + A) 1.44 1.62 1.62
 carried out in
4.56
work order the above
particular
Costdata
of a

below: Matenialused

Direct wages
department 80d0urly
Labourhoursbooked
Machinehoursbooked
the Work
63 2050
of order under the
factory cost
2,40
What
overheads.
() Dir
would be the

ct latbour
cost (i) Machine hour rate; and (iii) Direct
rate: flabourolominhourg ratneet.had
Solution : Overheads Rates:
Computation of Factory
Overhead
Labour Cost Rate:
x 100 90,000
) Direct Direct wages 7 72,000 x 100 =125%
Overhead
(u) Machine Hour Rate
: 790,000
No. of machine hours
25,000 hrs. -3.60 per
Overhead
:
90,000
() Direct Labour Hour Rate No. of labour hours
20,000 hrs. =4.50 per ha
STATEMENT OF FACTORY COST
Direct labour cost rate Machine hour rate Direct labo

Direct matenal 8,000 8,000

Direct wages 6,250 62
6,250
Prime Cost 14,250 14.2
14,250
Factory overhead:
() 125% of 6,250 7,812.50
() 3.60 for 2.400 hrs. 8,640 146
(ii) @4.50 for 3,300 hrs.
29.
Factory Cost 22,062.50 22,890

Problem 4.18
hou?
Acompary pre-determined machineactu
absorbs production overheads on the basis of
the month of March monththe d*
the under-absorption
hours worked were 7,928, budgeted machine hours were 8,500. During the (B
Com
t
actual
Ascertain the budgeted level overheads were 1,46,200 and there was
of oyerheads for the
monthn.
 4.57

verheads

absorbed overhead
blution
Absorbed overhead - Actual overhead - Under
1,38,740
- 1,46,200- 7,460 = R
1,38,740
= 17.50
Machine hour rate 7,928 hrs.

hours = 8,500 hrs.

Budaeted machine =R 1,48,750.
level Of overheads = 8,500 @ 17.50
Budgeted
Toblem 4.19
units per day and piece rate wages is 60 paise per
particular work order is 20 less than 20 units
Chandard production for a The rate is 50 paise per unit if production is
if daily production is 20 units
or more. under one of the
to charge factory overhead
paise per unit. It is proposed
r day. Cost of materials is 30
bllowing methods:
80% on primne cost.
(i) 100% on labour cost, (i1) statement and indicate the factory cost per unit
under
above data in the form of a suitable
Tabulate the :
daily production is
2ch of the above methods if the
(c) 25 units.
(a) 15 units, (b) 20 units,
olution
on labour cost
(i) When factory overheads are charged at 100%
STATEMENT OF COST
20 25
(A) Production (units per day) 15

Materials (@ 30 paise. peI unit) 4.50 6.00 7.50

7.50 12.00 15.00
Labour cost
Prime Cost 12.00 18.00 22.50
Factory overhead 7.50 12.00 15.00
(B) Factory Cost 19.50 30.00 37.50

Factory cost per unit (B + A) 1.30 1.50 1.50

(ü) When factory overheads are charged at 80% on prime cost

Statement of Cost
(A) Production (units per day) 15 20 25

Materials (@ 30 p. per unit) 4.50 6.00 7.50

Labour cost 7.50 12.00 15.00
Prime Cost 12.00 18.00 22.50
Factory overhead 9.60 14.40 18.00
(B) Factory Cost 21.60 32.40
Factory cast per unit (B + A) 40.50
1.44 1.62 1.62
 4.58

Problem 6.20

In a manufacturing unit
overhead was
total factory overhead expenses incured
and Tecovered
the
at a
pre-deteworked
man-days actually rmined rate of
Cost ACto
days respectivel. were
sehe s0.000 units produced dunng a 25 per
On analysing the easons it was found
penod, 30,000 were sold
that 60% of the
150 \akh anmad nt1
planning and the est were attributable to
overheads be treated in cost accounts ? increase in unabsorbed
overhead overheads
costs. How wOnla were due to de
under|over-at
Soiution :
(B.Com. Hons.
Actual oerhead incurred
Less Overhead absorbed ( 25 x
1.50 lakh hours) Z(in lakh
Under-absorbed overheads
60% of this 4 lakhs of 4150
should be charged to Costing unabsorbed overheads which is 37.50
charged to the cost of sales andProfit and Loss Account and thedue to defective 4.00
Charge to
closing stock by using remaining 40%,
a
supplementary rate. planning1.6(0abnor\akhsmal te
i.e..
Costing Proft and Loss Account sho:
Supplementary
Charge
Rate =
to cost of 1.60 lakhs ÷
40,000
(60% of 4 lakhs)
units =4 per unit
sales
Charge to ciosing stock (30,000 units @ 4)
(10,000 units @ 4)
Under-absorbed overhead 12.
Problem 4.21
A cost centre in a
factory furmishes the following working conditions:
Normal working week
Number of machines 40 hrs.
Normal weekly loss of hours on 15
Estimated annual overhead maintenance, etc. 4 hrs. per
machine
Estimated direct wage rate ?1,55,520
Number of weeks worked per year ?3 per hour
Actual results in respect of a 48
4-week period are :
Overhead incurred
Wages incurred ? 15,000

Machine-hours prOduced
You are required to :
7 7,000
2,200
(a) Calculate the
overhead rate per machine-hour, and
(b) Calculate the amount of
under or
over-absorption of both wages and overhead. (B. Com.,Det
 4.59

Overheads

1,55,520 weekly hrs.

Solution
: overhead= ?
(Normal) Number of machines x No. of weeks p.a. x Effective
Annual -
(a) workinghrS.
Annual = 15 x 48 x 36 = 25,920
25,920-6.00
machine hour = 1,55,520 +
peI
Overheadrate = 15,000
(0)Overheadincurred
= 13,200 (i.e., 2,200 x 6)
Overheadabsorbed
Under-absorbedoverhead = 15,000- 13,200 =7 1,800
=7,000
Wagesincurred x3 x 4 weeks)
=7,200(i.e., 40 hrs. x 15 machines
Wagesabsorbed
=7,200 - 7,000 = 200.
Wagesover-absorbed

Problem4.22 as follows :
data for each half year of J.P. Ltd. were
budgeted activity and cost
The 68,000
Direct labour hours 42,500
Direct wages 37,400
Overheads : Fixed 64,600
Variable
results were achieved :
months January to June the following actual
Duringthe 6 65.000
labour hours incurred
Direct 45,500
Direct wages 38,700
Overheads : Fixed 65,800
Variable
wages percentage rate. A proposal has been
existing method of absorbing overheads is by a direct rate analysed into fixed and variable
The direct labour hour
absorption to a
made to change the overhead
overheads.
June to calculate under the new proposal (i.e., using direct
January to
You are required for the period
labour hour rates of absorption) : absorption for fixed and variable overheads;
labour hour rates of overhead
() the budgeted direct
() the absorbed overheads; B. Com. Hons. Delhi)
overheads.
(ii) the over or under-absorbed

Solution :
Budgeted overheads
Overhead absorption rate (based on direct labour hours) = Labour hours

37,400 = Re. 0.55

Rate for fixed overheads
68,000

64,600
Rate for variable Re. 0.95
overheads 68,000
 1.50=
TotalRate 65,000 x
Absorted
ovetheads = 65,800 = 7 1,04,500
-38,700 + 97,500 =77,000
1,04,500 -
Actualoverhead's =?
Under-absorption
respect of a department of a
availablein
(including 20,000
Problem4,.23
particularsare 1.00,000 paid one time
follonzina expenses
The
orerhead
Actual
claim). hours
woIked
rate- 6 machine
hour
machine recovery
On analysisafunder-absorbed
Actual Overhead overheads it was noted that 70% of under-abSOTpt
Pre-determined
increase in expenditure. The department

defective
panningand30%
out of
is due
wich15,000
to
units were sold and 5,000 units remained in
treatment of under or Over
absorbed overhead
pinstock.
roduced 203
the month
reuiredtoshow cost ac ou
Fouare
(B.Com. kp
Solution :

(1,00,000- 20,000) 80,000

Normal overhead ? @6 per hr.)
Less : Overhead absorbed (10,000 hrs. 60,000
Under-absorbed overhead 20,000
Profit &Loss Account (70% of ? 20,000) = 14,000
Iranster to = 6,000
Charge to cost (30% of ? 20,000)
15,000
sold6,000 x = 4,500
.()Charge to cost of g0ods 20,000

5,000 = 1,500
() Chrage to stock 6,000 x20,000

EXAMINATION QUESTIONS
Objective Iype Questions
True or Folse ?
1. Fixed overhead
cost per unit remains fixed
2. when output level changes. distributionofovete
Re-apportionment
3. Ovetheads are
also
of service
department's
costs is known as secondary
4. Increased knOWn as indirect
5. When mecharisation results expenses.
in greater amount of fixed costs.
t/
transferred
under ot
6.
Profit and Loss over-absorbed
Accournt. overhead is a amount, it should
significant
be

Apportionment of
overheadon Teciprocal
basis is known as step ladder
method.
Overheads
4.61

Overhead absorption rates should be calculated on the

8. Machine hour rate method of absorption should be usedbasis of maximum
in only those costcapacity.
centres in which work is
dominantly done by machines.
en huilding is owned, rental value of the
building should be included in cost.
10. Cost of after sales services is a part of selling and
Ans. 1, F 2. T distribution overhead.
3. F 4. T
7. F 5. F
6. F 8. T 9. T 10. T
Theoretical Questions
ne overhead. Mention the different methods of
nictinquish between allocation and apportionment classification of costs. (B. Com., Andhra: Madras)
of overheads. Mention also the bases of
apportionment of expenses.
2 Distinguish between allocation and apportionment of overhead. (B. Com. Bharathidasam)
Define factory overheads. Explain the different methods of (B. Com., Kerala, Delhi)
absorption of factory overheads.
E What is meant by absorption of overhead ? Describe (B. Com., Punjab)
the different methods of absorption of overheads.
6 What is Machine Hour Rate ? How is it computed ? (B. Com., Madras)
7. What are administration overhead. Give five examples.
R What is meant by
under-absorption and over-absorption of
0. How are under and over-absorbed overhead ? What are its causes ?
overhead treated in cost accounts ?
10, Distinguish between allocation, apportionment and
11. Compare the advantages and disadvantages of absorption of overhead. (B. Com. Hons. Delhi)
percentage of direct materials and percentage of direct
wages methods of absorption of factory overheads.
Support your answer with reasons.
Which of these methods do vou think is better?

Practical Questions
1. Following figures have been extracted from the accounts
2022 : of it manufacturing concern for the year
Indirect Materials:
Production Deptt. X
Production Deptt. Y 950
Production Deptt. 2 1,200
Maintenance Deptt. P 200
Stores Deptt. Q 1,500
Indirect Wages: 400
Production Deptt. X
Production Deptt. Y 900
Production Deptt. 2 1,100
Maintenance Deptt. P 300
Stores Deptt. a 1,000
Power and light 650
Rent and rates 6,000
Insurance on assets 2,800
Meal charges 1.000
3.000
4.62

capital value of
assets.
Cost Ac
Depreciation @ 6% on calculate the share of
From the
following additional
information, overheads oe each
Departmernt: Production Deplts.
2
Items
4,000
4,000
1,20,000
3,000
80,000
Service De
2,000
P

Area (Sqg. feet)

Capital Value of assets)
1,00,000
4,000
4,400 1,600
30
60,1,500
000
Kilowatt hours 120
90 40
Number of employees
7,200' 7,800; Q 4,200]
P four
2. The Utra Modern
11,800: Y 14,000;isZR
Company divided into departments : A, Band Care production
[Ans. X
The actual costs
for Oct. 2012 are as follows :
department.
and Dis a service 1,000 Supervision
Rent Fire InsuranceStock
600
Repairs to plant Power
450
Depreciation of plant Employees' Stale Insurance
Light
information is available in
100
respect of the four departments
Contribution
The following C D
Department 1,500 1,100 900 500
Area sq.ft. 20 15 10
Number of employees 3,000
6,000 4,000 2,000
Direct wages 18,000 12,000 6.000
Value of plant ? 24,000
15,000 9,000 6,000
Value of stock ?
Overhead Distribution Summarv
Apportion the cost to the various departments preparing (B. Com., Madras. ki:n
[Ans. A 2,103; B 1,538; C 1,067; D 2,502]
collected for the three months endi:
3. (a) In Tata Electronics, the following particulars have been summary.
Dec. You are required to prepare an overhead distribution
Production Departments Service Deate
A B

4,000 1,000
Direct Wages 2,000 3,000
2,000 1.500
Direct Materials 1,000 2,000
50
Staff Nos. 100 150 150
1,000
Electricity Kwh. 4,000 3,000 2,000
6
Light Points Nos. 10 16
10,000
Assets Value 60,000 40,000 30,000
50
Area Occupied Sq. yd. 150 250 50
The expenses for the period were :
Motive power 550 Depreciation
Lighting power
Stores overhead
100 Repairs and maintenance
400 General overheads
Amenities to staff
1,500 Rent and taxes
 4.63
Overheads

costs of service department Eon the basis of direct wages and that of department Din
Apportionthe
55:3:2 to production departments A, B and respectively.
the ratio
Calculate the overhead absorption rates for each of the production departments assuming that
Overheads are recovered as a percentage of wages. (B. Com., Madras: B.B.M. Bangalore)
- 12,443: B- 10,523;C- 9,859; (b) A - 622.15%; B - 350.77% ;C- 246.47% J
(Ans. (a) A three production departments A, Band Cand two service departments Xand Y. The
company has
4. A by them during a month are :
expenses incurred 780,000 23,400
A
? 70,000 Y 730,000
B
7 50,000
of service departments are apportioned to production departments on the following
The expenses
basis : B C Y
A
Expenses of X 20% 40% 30% 10%
Expenses of Y 40% 20% 20% 20%
to how expenses of Xand Y Departments would be apportioned to A, B andC
Show clearly as
departments.
(B. Com., Calicut)
66,500]
JAns. A99,200; B- 88,600; C -
Departments
E Mahindra Machinists Ltd. has three production department (A, B and C) and two service
calculate the
/D and E). From the following figures extracted from the records of the company,
overhead rate per labour hour :
Indirect materials 715,000
Indirect wages 10,000
Depreciation on machinery 25,000
Depreciation on buildings 5,000
Rent, rates and taxes 10,000
Electric power for machinery 15,000
Electric power for lighting 500

General expenses 15,000

Total 95.500

Item Total A C D E
Direct materials 60,000 20,000 10,000 19,000 6,000 5,000
Direct wages 40,000 15,000 15,000 4,000 2,000 4,000
Value of machinery 2,50,000 60,000 1,00,000 40,000 25,000 25,000
Floor area (sq. ft.) 50,000 15,000 10,000 10,000 5,000 10,000
Horse power of machines 100 50 60 30 5 5

No. of light points 50 15 10 10 5 10

Labour hours 15,000 5,000 5,000 2,000 1,000 2,000

The expenses of Service Department Dand Eare to be apportioned as follows :

A B C D
40% 20% 30% 10%
E 30% 30% 40%
[Ans. A -8.38: B 7.95: C - 15.44]
Hint. Re-distribution of service department costs to A, B and Cis on non-reciprocal basis.
 4.64
6. Overhead costs before distribution of service department costs are as follows
Production departments S: Cost Ac ou
A:
B:
Service departments 27,24,000000
P:
Q:

Service departments overheads are to be allocated to the production

26,28,420000
Service departmentsP:
Production Departments
55%
A

30%
B departmentSes rvice folDeowspartmer
P
as
.

Q: 25% 35%
Compute the total overheads of production departments. 40%
[Ans. A 57,598; B 48,002] (B.
7. The departmental distribution summary showed the
following Com., Madr
Departments
Amount
A B C departmentalD totals :
7,550 7,200 9,650
The costs of service departments
4,625
and E are to be charged on the basis of 1,575
D
A
20% 30% 40%
D fol owing percentages E
40% 20% 30% 10%
10%
Find the total overheads of production
() Simultaneous Equation Method departments by using the following methods :
(ü) Repeated Distribution Method.
[Ans. A 9,339; B 9,061; C 12,200] (B. Con
8. You are supplied with the following
information and
overheads A, B andC using the repeated distributionrequired
to work out the production hour ate
method:
Production Departments Service Departments
A C P 0
Primary overhead 7,810 12,543 4,547 4,000 2,600
Expenses of service departments P and Q are apportioned as under :
B C P
30% 40% 20% 109
10% 20% 50% 20%
Estimated working hours of production are as under : Deptt. A1,000 hrs.; B2,500 hrs.: C1,400 hus
(B. Com., Bangalor
[Ans. Overheads -A9,500: B 15,000; C7,000
Production hour rate A 9.50; B R 6; C5]
9. Murugan Ltd. has three production departments A, B and C and two service departments S, andS
Monthly expenses in 600:Powe
-Rent 5,000; Indirect wages 1,500; Depreciation 10,000; Lighting
1.500; Sundries 10,000.
 4.65

Overheads
Service Deptts.
Total Production Deptts.
A B S S
2,000 500
square feet
10,000 2,000 2,500 3,000
in 10 5
Floorspace 60 10 15 20
Lightpoints 10,000 3,000 1,500 500
3,000 2,000
Wages( ) Machines 150 60 30 50 10
Powerof 5,000 5.000
Horse Machines() 2,50,000 60,000 80,000 1,00,000
Value of 6,226 4,028 4,066
Workinghours
and S, are allocated as follows :
expenses of S, P
The A
30% 40% 10%
20%
S 40% 20% 30% 10%
recovery rate per hour.
Caleulate overhead charges 3]
[Ans.
Overhead hourly rate A { 1.50; B 2.25; C
out the production hour rate of
supplied with the following information and required to work
10. You are Departments A, Band Cunder simultaneous equation method of distributing
absorption of overheads in
Production Departments.
Service Departments costs to
Production Departments Service Departments
Particulars P
A B C
Rs

Total overheads 11,310 13,050 8,040 7,500 6,100

5,000 4,000 3,000
No. of hours worked
P 30% 40% 20% 10%
Distribution percentages of
service departments costs to
production departments 0 15% 25% 40% 20%

(B. Com., Bangalore)

Overheads
[Ans. Production Hours Rate =
No. of hours

15,027 18,356 12,616

Deptt. A =
5,000 =3.005;
Deptt B = =4.589; Deptt C= 3,000 - 4.205].
4,000
11. The production department of a factory furnishes the following information for the month of October :

Materials used 54,000

Direct wages 45,000
Labour hours worked 36,000
Hours of Machine operations 30,000
Overheads chargeable to the departments 36,000
an order executed by the department during the period, the relevant information was as under :
Materials used 76,000
Direct wages 3,200
Labour hours worked 3,200
Hours of Machine Operation 2,400