It contents numerical problems and solution with clear working notes.
There are production departments and service departments in manufacturing company.
Direct materials and direct labour are NOT recorded in production departments.
But, direct materials and direct labour are recorded in service departments.
There are three methods to calculate machine hour rate and labour hour rate.
They are Absorption of overhead, allocation of overhead in direct method and allocation of overhead in step method.
All expenses other than direct expenses and production are overhead.
It is an aggregate of all indirect materials, indirect wages and indirect expenses.
Another name for overhead are on cost, burden cost, indirect expenses, non-productive cost, supplementary cost, logistic support cost and loading cost etc.
Definition of overhead
According to Institute of Cost and Management Account (ICMA, London), “Overhead is an aggregate of indirect materials, indirect wages and indirect expenses.”
Overheads represent fixed costs and relate to general business functions.
These costs still remain if production is shut down for a short period of time.
Some major overheads are:
Administrative overhead
General business overhead
Research overhead
Transportation overhead
Manufacturing overhead
Marketing overhead
Selling and promotional overhead etc.
Absorption means charging or sharing overhead to different cost units.
In other words, charging or sharing overhead to specific product or individual units is known absorption.
Generally, following methods are applied in absorption:
Production unit method | Cost per unit of output
Percentage of direct materials cost
Percentage of direct labour cost
Percentage of prime cost
Labour hour rate
Machine hour rate
Under this method, the costs of service department are NOT distributed or apportioned to production department.
Overcharge and under charge is ignored in this method.
According to this method, the rate of overhead equals the total costs of the enterprise expressed as a fraction of the direct material costs.
Rate of overhead = Total overhead costs ÷ Total direct material cost
This method has the serious drawback that values of materials used in different items of manufacture may vary widely.
Under step method of secondary distribution, the costs of service department are distributed or apportioned to production department step by step or one by one.
This redistribution may in percentage or ratio.
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2054, Q: 6
A Manufacturing Company has following departments where working 8 hours a day for 25 working days in a month, reporting department’s total cost, allocation of service department cost:
Activities |
Total |
Service Dept |
Production |
||
|
|
(Workshop) |
A |
B |
|
No of workers |
50 |
10 |
15 |
25 |
|
Space occupied in square feet |
100 |
20 |
20 |
60 |
|
Service received by production departments (in %) |
100 |
— |
40 |
60 |
|
Supervisor’s salary |
(Rs /₹/Rs) |
13,000 |
2,000 |
5,000 |
6,000 |
Power and lighting |
(Rs /₹/Rs) |
1,000 |
300 |
300 |
400 |
Rent |
(Rs /₹/Rs) |
5,000 |
|
|
|
Welfare |
(Rs /₹/Rs) |
1,000 |
|
|
|
Required: (a) Total overhead; (b) Labour hour rate
[Answer: Total overhead: Service = Rs 3,500; A = Rs 8,000; B = Rs 12,000;
LHR: A = Rs 2.67; B = Rs 2.40; *TLH = No. of worker x 25 days x 8 hours
SOLUTION
Calculation of Total overhead
Expenditure head |
Basis and ratio |
Total |
Service |
Production |
||
|
|
|
department |
A |
B |
|
Supervisor’s salary |
Direct |
|
13,000 |
2,000 |
5,000 |
6,000 |
Power and lighting |
Direct |
|
1,000 |
300 |
300 |
400 |
Rent |
Space |
20:20:60 |
5,000 |
1,000 |
1,000 |
3,000 |
Welfare |
No. of workers |
10:15:25 |
1,000 |
200 |
300 |
500 |
Total |
20,000 |
3,500 |
6,600 |
9,900 |
||
Allocation service department to PA and PB in 40:60 |
Nil |
(3,500) |
1,400 |
2,100 |
||
Total overhead |
20,000 |
Nil |
8,000 |
12,000 |
||
Total hours |
– |
|
3,000 |
5,000 |
||
Labour hours rate = Total overhead ÷ Total hours |
|
|
Rs 2.67 |
Rs 2.40 |
Given and working note:
Total labour hours |
= No. of workers x 8 hours x 25 days |
|
Production department A |
= 15 x 8 x 25 |
= 3,000 hours |
Production department B |
= 25 x 8 x 25 |
= 5,000 hours |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2060 II, Q: 8
A Manufacturing Company has three production departments A, B and C and one serve department S. The following information is available regarding various expenses:
Rent |
Rs 30,000 |
|
Canteen expenses |
Rs 3,000 |
Indirect wages |
Rs 11,000 |
|
Depreciation on machinery . |
Rs 20,000 |
Power |
Rs 15,000 |
|
Electricity |
Rs 6,000 |
The following further details are available:
Departments |
A |
B |
C |
S |
Direct wages (Rs) |
20,000 |
15,000 |
15,000 |
5,000 |
Floor area (square meter) |
4,000 |
3,000 |
2,000 |
1,000 |
Light points |
9 |
7 |
8 |
6 |
Cost of machine (Rs) |
100,000 |
50,000 |
40,000 |
10,000 |
Horse power ratio |
4 |
3 |
2 |
1 |
Number of workers |
50 |
50 |
40 |
10 |
Service rendered by the service department to production department A, B and C is in the ratio of 2:2:1
Required: Statement showing the overhead distribution
[Answer: A = Rs 39,960; B = Rs 29,060; C = Rs 20,980; Service Rs 12,900 in 2:2:1
*Direct wages is written only in service department
SOLUTION
Statement Showing the Overhead Distribution
Particulars |
Basis and ratio |
Total |
Productions |
Service |
|||
|
|
|
A |
B |
C |
|
|
Direct wages |
Direct |
|
5,000 |
– |
– |
– |
5,000 |
Rent |
Space/area |
4:3:2:1 = 10 |
30,000 |
12,000 |
9,000 |
6,000 |
3,000 |
Indirect wages |
Direct wages |
4:3:3:1 = 11 |
11,000 |
4,000 |
3,000 |
3,000 |
1,000 |
Power |
HP |
4:3:2:1 = 10 |
15,000 |
6,000 |
4,500 |
3,000 |
1,500 |
Canteen expenses |
No. of workers |
5:5:4:1 = 15 |
3,000 |
1,000 |
1,000 |
800 |
200 |
Depn on machine |
Cost of mach. |
10:5:4:1 = 20 |
20,000 |
10,000 |
5,000 |
4,000 |
1,000 |
Electricity |
Light point |
9:7:8:6 = 30 |
6,000 |
1,800 |
1,400 |
1,600 |
1,200 |
Total overhead |
90,000 |
34,800 |
23,900 |
18,400 |
12,900 |
||
Service rendered to production Rs 12,900 in 2:2:1 |
Nil |
5,160 |
5,160 |
2,580 |
(12,900) |
||
Total overhead |
90,000 |
39,960 |
29,060 |
20,980 |
Nil |
######
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######
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TU: 2061, Q: 7
In ABC Manufacturing Company there are two production departments P1 and P2 two service departments S1, and S2 following are the particulars of month of 25 working days of 8 hours each.
Departments |
P1 |
P2 |
S1 |
S2 |
Direct wages (Rs ) |
40,000 |
30,000 |
20,000 |
10,000 |
Value of plant (Rs ) |
200,000 |
150,000 |
100,000 |
50,000 |
Area (square meter) |
5,000 |
4,000 |
3,000 |
2,000 |
Number of light points |
10 |
8 |
7 |
5 |
Horse power of plant |
50 |
40 |
30 |
10 |
Number of workers |
20 |
25 |
30 |
15 |
Total expenses of service departments S1 and S2 are apportioned in the ratio of 3:2 to departments P1 and P2 respectively. The expenses for the month were:
Indirect wages |
Rs 20,000 |
|
Rent |
Rs 28,000 |
Power |
Rs 10,400 |
|
Depreciation on plant |
Rs 5,000 |
Lighting |
Rs 6,000 |
|
|
|
Required: (a) Overhead distribution statements; (b) Labour hour rate for each of the production department
[Answer: Service S1 = Rs 38,400 and S2 = Rs 18,300 in 3:2
Total overhead: P1 = Rs 57,860; P2 = Rs 41,540; LHR: P1= Rs 14.47; P2 = Rs 8.31]
SOLUTION:
Note: Direct wages is written only in service department
Statement Showing the Overhead Distribution
Particulars |
Basis and ratio |
Total |
Productions |
Service |
|||
|
|
|
P1 |
P2 |
S1 |
S2 |
|
Direct wages |
Direct |
– |
30,000 |
– |
– |
20,000 |
10,000 |
Indirect wages |
Direct wages |
4:3:2:1 = 10 |
20,000 |
8,000 |
6,000 |
4,000 |
2,000 |
Lighting |
Light point |
10:8:7:5 = 30 |
6,000 |
2,000 |
1,600 |
1,400 |
1,000 |
Power |
Horse Power |
5:4:3:1 = 13 |
10,400 |
4,000 |
3,200 |
2,400 |
800 |
Rent |
Area/m2 |
5:4:3:2 = 14 |
28,000 |
10,000 |
8,000 |
6,000 |
4,000 |
Depreciation |
Value of mach. |
4:3:2:1 = 10 |
5,000 |
2,000 |
1,500 |
1,000 |
500 |
Total |
99,400 |
26,000 |
20,300 |
34,800 |
18,300 |
||
Service rendered of S1 to P1 and P2 in 3:2 |
Nil |
20,880 |
13,920 |
(34,800) |
– |
||
Service rendered of S2 to P1 and P2 in 3:2 |
Nil |
10,980 |
7,320 |
– |
(18,300) |
||
Total overhead |
99,400 |
57,860 |
41,540 |
Nil |
Nil |
||
Labour hours |
– |
4,000 |
5,000 |
– |
– |
||
LHR = Total overhead ÷ Labour hours |
– |
Rs 14.47 |
Rs 8.31 |
|
|
Given and working note:
Total labour hours |
= No. of workers x 8 hours x 25 days |
|
Production P1 |
= 20 x 8 x 25 |
= 4,000 hours |
Production P2 |
= 25 x 8 x 25 |
= 5,000 hours |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2061, II, Q: 7 Or
The extracts out of the expenditure related to machine are given below (amount in Rs /₹/Rs):
Miscellaneous overhead related to machine Rs 12,000
Maintenance of plant Rs 40,000
Rent Rs 28,000
Power Rs 48,000
The operating positions of assembly finishing and store units are provided below (amount in Rs /₹/Rs):
|
Assembly unit |
Finishing unit |
Store unit |
Cost of plant in Rs |
400,000 |
300,000 |
100,000 |
Machine hour in operation |
32,000 |
20,000 |
8,000 |
Space covered in (square meter) |
8,000 |
5,000 |
1,000 |
Required: (1) Primary distribution of overheads
(2) Total overhead after re-apportioning the cost of store in the ratio of 1:1; (3) Overhead per machine hour
[Answer: (1) Primary overhead = Rs 68,000; Rs 45,000 and Rs 15,000;
(2) Total overhead = Rs 75,500 and Rs 52,500; (3) MHR = Rs 2.36 and Rs 2.63]
SOLUTION
Primary Distribution of Overhead
Particulars / expenses |
Basis and ratio |
Total |
Assembly |
Finishing |
Store |
|
Miscellaneous expenses |
MH |
8:5:2 = 15 |
12,000 |
6,400 |
4,000 |
1,600 |
Maintenance of plant |
Cost of plant |
4:3:1 = 8 |
40,000 |
20,000 |
15,000 |
5,000 |
Rent |
Space |
8:5:1 = 14 |
28,000 |
16,000 |
10,000 |
2,000 |
Power |
MH |
8:5:2 = 15 |
48,000 |
25,600 |
16,000 |
6,400 |
Primary distribution of overhead |
128,000 |
68,000 |
45,000 |
15,000 |
||
Store’s amount transfer to assembly and finishing in 1:1 |
Nil |
7,500 |
7,500 |
(15,000) |
||
Total overhead |
128,000 |
Rs 75,500 |
Rs 52,500 |
Nil |
||
Machine hours |
– |
32,000 |
32,000 |
– |
||
Machine hours rate = Total overhead ÷ Machine hour |
– |
Rs 2.36 |
Rs 2.63 |
– |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2062, Q: 7
The expenses of Apparel Garment Factory are given below: (amount in Rs /₹/Rs)
Welfare and cafeteria Rs 60,000
Fuel Rs 75,000
Rent and lighting Rs 30,000
Insurance and tax of properties Rs 25,000
The other necessary particulars are as follows: (amount in Rs /₹/Rs)
Particulars |
Processing I |
Processing II |
Service unit |
Number of staff |
20 |
15 |
5 |
Area used in square meter |
3,500 |
2,000 |
500 |
Value of properties |
10,00,000 |
8,00,000 |
2,00,000 |
Machine hours |
16,000 |
9,000 |
— |
The service unit has provided service to processing unit I and unit II In the ratio of 3.2
Required: (a) Overhead distribution summary; (b) Overhead per machine hour after apportioning the cost of service unit
[Answer: Total overhead: Service = Rs 12,500 in 3:2;
PI = Rs 115,500 and P II = Rs 74,500; MHR: PI = Rs 7.22 and PII = Rs 8.28]
SOLUTION
Overhead Distribution Summary
Particulars / expenses |
Basis and ratio |
Total |
Processing |
Service |
||
|
|
|
1 |
2 |
|
|
Welfare and cafeteria |
No. of staff |
4:3:1 = 8 |
60,000 |
30,000 |
22,500 |
7,500 |
Fuel |
Mach. Hours |
16:9 = 25 |
75,000 |
48,000 |
27,000 |
– |
Rent and lighting |
Area/m2 |
7:4:1 = 12 |
30,000 |
17,500 |
10,000 |
2,500 |
Interest and tax |
Value of property |
5:4:1 = 10 |
25,000 |
12,500 |
10,000 |
2,500 |
Total |
190,000 |
108,000 |
69,500 |
12,500 |
||
Service amount transfer to P1 and P2 in 3:2 |
Nil |
7,500 |
5,000 |
(12,500) |
||
Total overhead |
Rs 190,000 |
Rs 115,500 |
Rs 74,500 |
Nil |
||
Machine hours |
– |
16,000 |
9,000 |
– |
||
Machine hours rate = Total overhead ÷ Machine hour |
– |
Rs 7.22 |
Rs 8.28 |
– |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2069, Q: 8
The expenditures are extracted from the book of A Factory are as under:
Motive power |
Rs 20,000 |
Depreciation |
Rs 30,000 |
Lighting power |
Rs 7,000 |
Repairs and maintenance |
Rs 6,000 |
Amenities to staff |
Rs 20,000 |
Rent |
Rs 32,000 |
The factory has three production departments (PD) and one service department (SD).
The operating positions of three departments are provided below:
|
PD1 |
PD2 |
PD3 |
SD |
Light points |
10 |
15 |
5 |
5 |
No. of employees |
100 |
150 |
100 |
50 |
Areas occupied in square meter |
400 |
600 |
500 |
100 |
Electricity (kW) |
4,000 |
3,000 |
2,000 |
1,000 |
Assets value |
Rs 140,000 |
Rs 60,000 |
Rs 60,000 |
Rs 20,000 |
Machine operating hours |
5,000 |
3,000 |
3,500 |
– |
Service rendered by service department |
50% |
20% |
30% |
– |
Required: (a) Overhead analyses sheet by showing total overhead rate per hour
[Answer: Total overhead: PD1 = Rs 44,359; PD2 = Rs 39,965; PD3 = Rs 32,676;
Service department = Rs 9,500 rendered in in 50%: 20%: 30%]
SOLUTION:
Statement Showing the Overhead Distribution
Particulars |
Basis and ratio |
Total |
Productions Department |
Service |
|||
|
|
|
PD1 |
PD2 |
PD3 |
SD |
|
Motive power |
kW |
4:3:2:1 = 10 |
20,000 |
8,000 |
6,000 |
4,000 |
2,000 |
Lighting power |
Light points |
2:3:1:1 = 7 |
7,000 |
2,000 |
3,000 |
1,000 |
1,000 |
Amenities to staff |
No. of employees |
2:3:2:1 = 8 |
20,000 |
5,000 |
7,500 |
5,000 |
2,500 |
Depreciation |
Assets value |
14:6:6:2 = 28 |
30,000 |
14,000 |
8,000 |
8,000 |
2,000 |
Repairs and maint. |
MH |
50:30:35 = 115 |
6,000 |
2,609 |
1,565 |
1,826 |
0 |
Rent |
Areas occupied |
4:6:5:1 = 16 |
32,000 |
8,000 |
12,000 |
10,000 |
2,000 |
Total |
115,000 |
39,609 |
38,065 |
29,826 |
9,500 |
||
Service rendered of SD to PD1, PD2, PD3 in 50%: 20%: 30% |
0 |
4,750 |
1,900 |
2,850 |
(9,500) |
||
Total overhead |
Rs 150,000 |
Rs 44,359 |
Rs 39,965 |
Rs 32,676 |
0 |
||
Machine hours |
|
5,000 |
3,000 |
3,500 |
|
||
MHR = Total overhead ÷ Machine hours |
|
Rs 8.87 |
Rs 13.32 |
Rs 8.76 |
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2072, Old, Q: 8
The overhead expenditures of A Manufacturing Company extracted from its records are given below:
Repairs |
Rs 5,000 |
Power |
Rs 4,000 |
Supervision |
Rs 10,000 |
Rent |
Rs 12,000 |
Light |
Rs 6,000 |
Depreciation |
Rs 15,000 |
The company has three production departments namely X, Y and Z and one service department (SD). The other details of departments are as under:
Particulars |
PDX |
PDY |
PDZ |
SD |
Assets value |
Rs 20,000 |
Rs 10,000 |
Rs 10,000 |
Rs 10,000 |
No. of workers |
10 |
20 |
10 |
10 |
Area in square meter |
200 |
100 |
100 |
200 |
Horse power (HP) of machine |
500 |
200 |
100 |
200 |
Machine operating hours |
4,000 |
2,000 |
2,000 |
– |
Service rendered by service department |
40% |
30% |
30% |
– |
Required: (a) Apportionment overhead cost to the department; (b) Overhead rate per machine hour
[Answer: Total: X = Rs 18,000; Y = Rs 11,800; Z = Rs 9,400; S = Rs 12,800;
Total overhead: X = Rs 23,120; Y = Rs 15,640; Z = Rs 13,240;
MHR: X= Rs 5.78; Y = Rs 7.82; Z = Rs 6.62]
SOLUTION:
Statement Showing the Overhead Distribution
Particulars |
Basis and ratio |
Total |
Productions Department |
Service |
|||
|
|
|
PDX |
PDY |
PDZ |
SD |
|
Repairs |
Assets value |
2:1:1:1 |
5,000 |
2,000 |
1,000 |
1,000 |
1,000 |
Supervision |
No. of workers |
1:2:1:1 |
10,000 |
2,000 |
4,000 |
2,000 |
2,000 |
Light |
Area |
2:1:1:2 |
6,000 |
2,000 |
1,000 |
1,000 |
2,000 |
Power |
HP |
5:2:1:2 |
4,000 |
2,000 |
800 |
400 |
800 |
Rent |
Area |
2:1:1:2 |
12,000 |
4,000 |
2,000 |
2,000 |
4,000 |
Depreciation |
Assets value |
2:1:1:1 |
15,000 |
6,000 |
3,000 |
3,000 |
3,000 |
Total |
53,000 |
18,000 |
11,800 |
9,400 |
12,800 |
||
Service rendered of SD to PD1, PD2, PD3 in 40%: 30%: 30% |
Nil |
5,120 |
3,840 |
3,840 |
(12,800) |
||
Total overhead |
Rs 53,000 |
Rs 23,120 |
Rs 15,640 |
Rs 13,240 |
Nil |
||
Machine hours |
|
4,000 |
2,000 |
2,000 |
|
||
MHR = Total overhead ÷ Machine hours |
|
Rs 5.78 |
Rs 7.82 |
Rs 6.62 |
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2072, Q: 11
XYZ Manufacturing Company having three production departments namely A, B and C and two service departments X and Y. The operating condition of the departments are as given below:
Particulars |
Production Departments |
Service Departments |
|||
|
A |
B |
C |
X |
Y |
Direct materials (Rs) |
2,000 |
3,000 |
4,000 |
2,500 |
1,500 |
Direct wages (Rs) |
6,000 |
4,000 |
3,000 |
1,600 |
2,500 |
Area in square meter |
400 |
300 |
500 |
300 |
500 |
Capital in value of assets (Rs in Lakhs) |
30 |
40 |
15 |
5 |
10 |
Light points |
20 |
20 |
30 |
10 |
10 |
Service rendered by service departments |
40% |
30% |
30% |
– |
– |
Machine hours |
100 |
120 |
110 |
– |
– |
The overhead extracted from the book of the company are as follows:
Building rent Rs 12,000
Depreciation Rs 10,000
Store overhead Rs 26,000
Lighting Rs 2,700
Required: (a) A statement showing overheads distribution to productions and service departments
(b) Machine hour rate of the production departments
[Answer: Total: A = Rs 10,000; B = Rs 12,400; C= Rs 13,400; X = Rs 11,600; Y = Rs 11,300;
Total overhead: A = Rs 19,160; B = Rs 19,270; C= Rs 20,270;
MHR: A= Rs 191.60; B = Rs 160.58; C = Rs 184.27]
SOLUTION:
Statement Showing the Overhead Distribution
Particulars |
Basis and ratio |
Total |
Productions Departments |
Services |
||||
|
|
|
A |
B |
C |
X |
Y |
|
Direct materials |
Direct |
|
4,000 |
|
|
|
2,500 |
1,500 |
Direct wages |
Direct |
|
4,100 |
|
|
|
1,600 |
2,500 |
Building rent |
Area |
4: 3: 5: 3: 5 |
12,000 |
2,400 |
1,800 |
3,000 |
1,800 |
3,000 |
Depreciation |
Value of assets |
30: 40: 15: 5: 10 |
10,000 |
3,000 |
4,000 |
1,500 |
500 |
1,000 |
Store overhead |
Direct materials |
2: 3: 4: 2.5: 1.5 |
26,000 |
4,000 |
6,000 |
8,000 |
5,000 |
3,000 |
Lighting |
Light points |
2: 2: 3: 1: 1 |
2,700 |
600 |
600 |
900 |
300 |
300 |
Total |
58,700 |
10,000 |
12,400 |
13,400 |
11,600 |
11,300 |
||
Service rendered in 40%: 30%: 30% |
Nil |
4,640 |
3,480 |
3,480 |
(11,600) |
Nil |
||
Service rendered in 40%: 30%: 30% |
Nil |
4,520 |
3,390 |
3,390 |
Nil |
(11,300) |
||
Total overhead |
Rs 58,700 |
Rs 19,160 |
Rs 19,270 |
Rs 20,270 |
|
|
||
Machine hours |
|
100 |
120 |
110 |
|
|
||
MHR = Total overhead ÷ Machine hours |
|
Rs 191.60 |
Rs 160.58 |
Rs 184.27 |
|
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2073, Q: 11
Ratna Company Ltd is a factory with three production departments P, Q, R and two service departments X and Y
Overhead for the period are as follows:
Electric light |
Rs 6,400 |
Power |
Rs 20,000 |
Salary |
Rs 34,000 |
Depreciation |
Rs 26,000 |
Factory rent |
Rs 23,000 |
General overhead |
Rs 17,000 |
Other information is available:
Particulars |
Production Departments |
Service Departments |
|||
|
P |
Q |
R |
X |
Y |
Direct materials (Rs) |
60,000 |
40,000 |
30,000 |
20,000 |
20,000 |
Direct labour (Rs) |
30,000 |
20,000 |
15,000 |
10,000 |
10,000 |
Machine hours |
5,000 |
4,000 |
2,500 |
– |
– |
Light points |
10 |
8 |
8 |
4 |
4 |
Horse power (HP) |
20 |
12 |
6 |
1 |
1 |
Area in square meter |
400 |
300 |
200 |
100 |
150 |
Value of plant (Rs in Lakhs) |
6 |
4 |
3 |
– |
– |
Service rendered by service departments |
40% |
30% |
30% |
– |
– |
Required: (a) Overheads cost for each production departments; (b) Machine hour rate of the production departments
[Answer: Total: P = Rs 50,000; Q = Rs 33,600; R= Rs 23,200; X = Rs 39,300; Y = Rs 40,300;
Total overhead: P = Rs 81,840; Q = Rs 57,480; R = Rs 47,080;
MHR: P = Rs 16.37; Q = Rs 14.37; R = Rs 23.54]
SOLUTION:
Statement Showing the Overhead Distribution
Particulars |
Basis and ratio |
Total |
Productions Departments |
Services |
||||
|
|
|
P |
Q |
R |
X |
Y |
|
Direct materials |
Direct |
|
40,000 |
– |
– |
– |
20,000 |
20,000 |
Direct labour |
Direct |
|
20,000 |
– |
– |
– |
10,000 |
10,000 |
Electric light |
Light points |
10: 8: 8: 4: 4 |
6,400 |
2,000 |
1,600 |
1,200 |
800 |
800 |
Salary |
Direct labour |
3: 2: 1.5: 1: 1 |
34,000 |
12,000 |
8,000 |
6,000 |
4,000 |
4,000 |
Factory rent |
Area |
4: 3: 2: 1: 1.5 |
23,000 |
8,000 |
6,000 |
4,000 |
2,000 |
3,000 |
Power |
Horse power |
20: 12: 6: 1: 1 |
20,000 |
10,000 |
6,000 |
3,000 |
500 |
500 |
Depreciation |
Value of assets |
6: 4: 3: 0: 0 |
26,000 |
12,000 |
8,000 |
6,000 |
0 |
0 |
General overhead |
Direct labour |
3: 2: 1.5: 1: 1 |
17,000 |
6,000 |
4,000 |
3,000 |
2,000 |
2,000 |
Total |
186,000 |
50,000 |
33,600 |
23,200 |
39,300 |
40,300 |
||
Service rendered in 40%: 30%: 30% |
Nil |
15,720 |
11,790 |
11,790 |
(39,300) |
Nil |
||
Service rendered in 40%: 30%: 30% |
Nil |
16,120 |
12,090 |
12,090 |
Nil |
(40,300) |
||
Total overhead |
186,000 |
Rs 81,840 |
Rs 57,480 |
Rs 47,080 |
Nil |
Nil |
||
Machine hours |
|
5,000 |
4,000 |
2,500 |
|
|
||
MHR = Total overhead ÷ Machine hours |
|
Rs 16.37 |
Rs 14.37 |
Rs 23.54 |
|
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2075, Q: 11
Pokhara Factory has three production departments and one service department. Other details are as follows:
Particulars |
Production Departments |
Service |
||
|
A |
B |
C |
S |
Direct materials (Rs) |
20,000 |
30,000 |
20,000 |
5,000 |
Direct wages (Rs) |
25,000 |
20,000 |
15,000 |
5,000 |
Labour hours |
3,000 |
2,000 |
2,000 |
– |
Area in square meter |
400 |
300 |
200 |
100 |
Light points |
5 |
3 |
2 |
2 |
Horse power (HP) |
8 |
3 |
2 |
1 |
Fixed assets value of plant (Rs in Lakhs) |
10 |
5 |
3 |
2 |
Service rendered by service departments |
50% |
30% |
20% |
– |
Overhead for the period are as follows:
Rent |
Rs 10,000 |
Depreciation |
Rs 20,000 |
Electric light |
Rs 12,000 |
General overhead |
Rs 13,000 |
Power |
Rs 15,000 |
|
|
Required: (a) Total overheads of each production department; (b) Labour hour rate of the production departments
[Answer: Total: A = Rs 31,500; B = Rs 18,750; C= Rs 12,500; S = Rs 17,250;
Total overhead: A = Rs 40,125; B = Rs 23,925; C = Rs 15,950;
MHR: A = Rs 11.38; B = Rs 11.96; C = Rs 7.98]
SOLUTION:
Statement Showing the Overhead Distribution
Particulars |
Basis and ratio |
Total |
Productions Department |
Service |
|||
|
|
|
A |
B |
C |
S |
|
Direct materials |
Direct |
|
5,000 |
– |
– |
– |
5,000 |
Direct wages |
Direct |
|
5,000 |
– |
– |
– |
5,000 |
Rent |
Area |
4: 3: 2: 1 |
10,000 |
4,000 |
3,000 |
2,000 |
1,000 |
Electric light |
Light points |
5: 3: 2: 2 |
12,000 |
5,000 |
3,000 |
2,000 |
2,000 |
Power |
HP |
8: 3: 2: 1 |
15,000 |
7,500 |
3,750 |
2,500 |
1,250 |
Depreciation |
Assets value |
10: 5: 3: 2 |
20,000 |
10,000 |
5,000 |
3,000 |
2,000 |
General overhead |
Direct wages |
25: 20: 15: 5 |
13,000 |
5,000 |
4,000 |
3,000 |
1,000 |
Total |
80,000 |
31,500 |
18,750 |
12,500 |
17,250 |
||
Service rendered of A, B, C in 50%: 30%: 20% |
Nil |
8,625 |
5,175 |
3,450 |
(17,250) |
||
Total overhead |
Rs 80,000 |
Rs 40,125 |
Rs 23,925 |
Rs 15,950 |
Nil |
||
Machine hours |
|
3,000 |
2,000 |
2,000 |
|
||
MHR = Total overhead ÷ Machine hours |
|
Rs 13.38 |
Rs 11.96 |
Rs 7.98 |
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2075, Q: 11
A Manufacturing has three production departments A, B and C and one service department S.
The following information is available regarding various expenses.
Rent |
Rs 30,000 |
Canteen expenses |
Rs 4,000 |
Power |
Rs 30,000 |
Indirect wages |
Rs 17,000 |
Depreciation |
Rs 25,000 |
Electricity |
Rs 8,000 |
The following further details are available:
Particulars |
Production Departments |
Service |
||
|
A |
B |
C |
S |
Direct materials (Rs) |
40,000 |
40,000 |
30,000 |
10,000 |
Direct wages (Rs) |
20,000 |
20,000 |
15,000 |
5,000 |
Flour area in square meter |
5,000 |
4,000 |
4,000 |
6,000 |
Light points |
10 |
8 |
8 |
6 |
Cost of machines (Rs) |
100,000 |
80,000 |
60,000 |
30,000 |
Horse power (HP) |
5 |
4 |
4 |
2 |
No. of workers |
60 |
60 |
50 |
30 |
Required: Total overheads of each production department
[Answer: Total: A = Rs 37,700; B = Rs 29,200; C= Rs 28,000; S = Rs 29,100;
Total overhead: A = Rs 49,340; B = Rs 40,840; C = Rs 33,820]
SOLUTION:
Statement Showing the Overhead Distribution
Particulars |
Basis and ratio |
Total |
Productions Department |
Service |
|||
|
|
|
A |
B |
C |
S |
|
Direct materials |
Direct |
|
10,000 |
– |
– |
– |
10,000 |
Direct wages |
Direct |
|
5,000 |
– |
– |
– |
5,000 |
Rent |
Area |
5: 4: 4: 2 |
30,000 |
10,000 |
18,000 |
8,000 |
4,000 |
Power |
HP |
5: 4: 4: 2 |
30,000 |
10,000 |
18,000 |
8,000 |
4,000 |
Depreciation |
Assets value |
10: 6: 6: 3 |
25,000 |
10,000 |
6,000 |
6,000 |
3,000 |
Canteen amenities |
No. of workers |
8: 6: 5: 3 |
4,000 |
1,200 |
1,200 |
1,000 |
600 |
Indirect wages |
Direct wages |
4: 4: 3: 1 |
12,000 |
4,000 |
4,000 |
3,000 |
1,000 |
Electricity |
Light points |
5: 4: 4: 3 |
8,000 |
2,500 |
2,000 |
2,000 |
1,500 |
Total |
124,000 |
37,700 |
29,200 |
28,000 |
29,100 |
||
Service rendered to A, B, C in 2: 2: 1 |
Nil |
11,640 |
11,640 |
5,820 |
(29,100) |
||
Total overhead |
124,000 |
Rs 49,340 |
Rs 40,840 |
Rs 33,820 |
Nil |
||
Machine hours |
|
|
|
|
|
||
MHR = Total overhead ÷ Machine hours |
|
|
|
|
|
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