Accounting for Overhead | TU Questions | Allocation of Overhead | Step Method

 

 

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.

 

 

Click on the photo for FREE eBooks

 

 

 

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

 

 

 

######

Click on the link for YouTube videos
Accounting Equation	http://tiny.cc/c89jkz
Journal Entries in Nepali	http://tiny.cc/uaakkz
Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cashbook	http://tiny.cc/889jkz
Trial Balance and Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Click on the link for YouTube videos chapter wise
Financial Accounting and Analysis (All videos)	http://tiny.cc/jlersz
Accounting Process	http://tiny.cc/mlersz
Accounting for Long Lived Assets	http://tiny.cc/plersz
Analysis of Financial Statement	http://tiny.cc/slersz

######

 

 

 

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

 

 

EP Online Study

Thank you for investing your time.

Please comment on the article and share this post on your social media platform.

 

Jay Google, Jay YouTube, Jay Social Media

जय गूगल. जय युट्युब, जय सोशल मीडिया