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Home /  Accounting for Overhead
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  • Estimated reading time : 448 Minutes
  • Accounting for Overhead | TU Questions | Allocation of Overhead | Step Method

  • Arjun EP
  • Published on: March 27, 2022

  •  

     

    Accounting for overhead, TU Solution

    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.

     

     

    Concept of Overhead

    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. 

     

     

    (1) Absorption of Overhead

    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

     

     

    (2) Allocation of Overhead | Direct Distribution Method

    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.

     

     

    (3) Allocation of Overhead | Step Method

    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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    Allocation of Overhead | Step Method

    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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    ######

     

     

     

    Here, Amount = Rs = $  = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

    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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