Overhead

distribution
PARAMJIT SHARMA

Departmentalization
1 Process of dividing the factory into number of Segments Is called Departmentalization

P1

P2
Prod Departments

P3

S1

S1

Service Dept.

PARAMJIT SHARMA

Departmentalization
2 Process of allocating and apportioning POHEs to different departments or cost centers (Prod & Service ) Factory
Overheads

P1

P2
Prod Departments

P3

S1

S1

Service Dept.

PARAMJIT SHARMA

Departmentalization
Factory Overheads Allocation & Apportionment

P1

P2
Prod Departments

P3

S1

S1

Service Dept.

PARAMJIT SHARMA

Service Departments
Repair Department

Maintenance Department

Power House

Canteen

Purchase

Fire Protection

Tool Room

Personnel Department

Stores
Transport

Boiler House

Time-Keeping PARAMJIT SHARMA

Distribution of Overhead
ALLOCATION
APPORTIONMENT

Specific Costs

Common Costs

PARAMJIT SHARMA

Distribution of Overhead
ALLOCATION
Allocating whole amount Of an item of POHs to the department for which The expenditure was incurred

Specific Costs

PARAMJIT SHARMA

Distribution of Overhead
APPORTIONMENT

Common costs are apportioned Amongst different departments or cost centers on some basis
Common Costs

PARAMJIT SHARMA

Principal Basis of Apportionment Of Overheads

Floor Area Capital Value Of Assets Number Of Employees Machine Hours Direct Labour Hours Light Points Kilowatt Hours Technical Analysis PARAMJIT SHARMA

BASIS FOR APPORTIONMENT

Rent, Rates & Taxes, Lighting & Heating Insurance & depreciation of Building, Cost of repairs & maintenance of Building, Air Conditioning

Floor Area Occupied

Insurance & Depreciation on Plant & Machinery, maintenance of PM, Insurance on building, etc

Capital Value

PARAMJIT SHARMA

BASIS FOR APPORTIONMENT

Welfare Expenses, time-Keeping ,pay-roll Office, Canteen, Recreation, Supervision Medical Expenses

No.Of Employees

Repairs & Maintenance of Plant & Machinery

Machine Hours

PARAMJIT SHARMA

BASIS FOR APPORTIONMENT

Direct Labour Hrs

Works Managers Remuneration, Salary of Supervisors etc

Light Points Or Kilowatt Hours

Electricity Charges

PARAMJIT SHARMA

BASIS FOR APPORTIONMENT

Technical Estimate

Where not possible to apportion on some Bases Technical estimate is made

Horse Power

Motive Power Expenses

PARAMJIT SHARMA

BASIS FOR APPORTIONMENT

Value or Weight of Materials

Store Keeping Expenses

Truck Mileage Tonnage Truck Hours No.Of Pakages

Transport Service Expenses

PARAMJIT SHARMA

PRINCIPLES OF APPORTIONMENT

Utility or Service Principle

Survey Method

Ability To Pay

Efficiency Principle
PARAMJIT SHARMA

PRINCIPLES OF APPORTIONMENT

Utility or Service Principle

Service or Benefits received By the department

PARAMJIT SHARMA

PRINCIPLES OF APPORTIONMENT

Ability To Pay

What the Traffic can bear Basis of Sales or Profit

PARAMJIT SHARMA

PRINCIPLES OF APPORTIONMENT

Survey Method
When Difficult to select Basis Production Managers Salary (Time spent in Each Dept)

PARAMJIT SHARMA

PRINCIPLES OF APPORTIONMENT

Out put as the basis

Higher Production Low Overhead Rate Low Production High OH Rate

Efficiency Principle

PARAMJIT SHARMA

Quick Check
Identify the Basis for following Overheads
Rent Plant Repairs Power Depreciation of Building Building Repairs Insurance Of Building Fire Insurance of Stock Lighting Expenses Supervision Power ESI Employers Cont. to PF Amenities To Staff Canteen Gn. Overheads Floor Area Value of Plant Machine Hours/HP/VM Value Of Building Value Of Building Floor Area Value Of Stock No.Of Light Points No.Of Employees Kilowatt/Value of Plant Direct Wages Direct Wages No.Of Employees/Wages No.Of Employees Direct Wages

PARAMJIT SHARMA

Summary Of Departmental Overhead Distribution

Total Production Departments B C D (Rs) A (Rs) (Rs) (Rs) (Rs)
2,000 1,200 900 200 1,000 300 750 480 360 75 500 120 550 360 270 55 300 90 2,965 540 800 450 240 180 45 200 60 2,135 360 600 1,095 250 120

Particulars
Rent Plant Maintenance
Depreciation 90 Lighting 25 Insurance -Employer's Cont to PF 30 Total Energy 180 Supervision 400

Basis
Area(15:11:9:5)
Value Of Mch. (4:3:2:1) Value Of Mch. (4:3:2:1) Area(15:11:9:5) Stock Value(5:3:2) Wages (4:3:2:1) Value Of Mch. (4:3:2:1) No.Of Emp (6:4:3:2)

10,400 1,800 4,205 720 3,000 1,200

PARAMJIT SHARMA

Summary Of Departmental Overhead Distribution

Total Production Dept. (Rs) A B C 10,000 6,000 4,500 1,000 15,000 5,000 9,000 1,500
52,000

Particulars Rent Repairs To Plant Depreciation Lighting Supervision Fire Insurance Power ESI

Basis Area Value Of Plant Light Points No Of Employees Value Of Stock Value Of Plant Wages

SD

D (Rs) (Rs) (Rs) (Rs) 3,750 2,750 2,250 1,250 2,400 1,800 1,200 600 1,800 1,350 900 450 375 275 225 125 6,000 4,500 3,000 1,500 2,500 1,500 1,000 3,600 2,700 1,800 900 600 400 300 200

Total

21,500 15,27510,675 5,025

PARAMJIT SHARMA

Redistribution of Overheads Reapportionment of Overheads Secondary Distribution Of Overheads

PARAMJIT SHARMA

Service Department Cost Re-Apportionment

Production Departments
Carry out the central purposes of an organization.

Service Departments
Provide support that facilitates the activities of production departments.

PARAMJIT SHARMA

The Need for Cost Re-Apportionment

How are service department costs charged to operating departments? First, we identify the factor that drives costs in the service department. This cost driver is used as the apportionment base.

PARAMJIT SHARMA

The Need for Cost Apportionment

Second, we measure the consumption of the apportionment base in the operating departments.

PARAMJIT SHARMA

The Need for Cost Apportionment

Third, we apportion the service department cost based on the relative amount of the apportionment base used in each operating department.

PARAMJIT SHARMA

The Need for Cost Apportionment

What happens to service department costs after they are apportioned to operating departments? Apportioned service department costs become a part of the overhead in each operating department.

PARAMJIT SHARMA

The Need for Cost Apportionment

Service Department (Cafeteria) Service Department (Accounting) Service Department (Personnel)
First Stage Apportionment Service department costs are apportioned to operating departments.

Operating Department (Machining) Operating Department (Assembly)

PARAMJIT SHARMA

The Products

The Need for Cost Apportionment

Service Department (Cafeteria) Service Department (Accounting) Service Department (Personnel)
Second Stage Apportionment Operating department overhead costs and apportioned service department costs are applied to products.

Operating Department (Machining) Operating Department (Assembly)

PARAMJIT SHARMA

The Products

Selecting Apportionment Bases

Personnel: Number of employees

Criteria

Custodial: Square footage

Receiving: Units handled

Easiest
Accounting: Staff hours
PARAMJIT SHARMA

Cafeteria: Number of employees

Security: Square footage

Power: Kilowatt hours

Re- apportionment Basis

Purchase Department

No of Purchase Orders or value of Materials Purchased for each Production Department

Stores

Value or Quantity of Materials Issued No. Of Materials Requisitions

PARAMJIT SHARMA

Re- apportionment Basis

Weight & Distance

Internal Transport

inspection

Inspection Hrs. Devoted to each Department

PARAMJIT SHARMA

Re- apportionment Basis

Time Keeping, Security Canteen Welfare Recreation Medical Personnel Pay Roll

Number Of Employees Total Labour Hours or Wages or Salaries

PARAMJIT SHARMA

Re- apportionment Basis

Hrs. Devoted or Worked for Each Department

Maintenance Department

Factory Office

No .Of Employees

PARAMJIT SHARMA

Re- apportionment Basis

Relative Area Of Each Deptt

Building Service Deptt

Boiler House

% Of Steam Utilized

PARAMJIT SHARMA

Interdepartmental Services
Problem Re Apportioning costs when service departments provide services to each other Solutions Direct Method Step method Reciprocal method
PARAMJIT SHARMA

Direct Method
Interactions between service departments are ignored and all costs are allocated directly to operating departments.

Service Department (Cafeteria)

Operating Department (Machining)

Service Department (Custodial)

Operating Department (Assembly)

PARAMJIT SHARMA

Direct Method Example

Cafeteria Departmental costs before allocation Number of employees Square feet occupied Custodial Machining Assembly INR 360,000 INR 90,000 INR 400,000 INR 700,000 15 10 20 30 5,000 2,000 25,000 50,000

Service Department Cafeteria Custodial

Apportionment Base Number of employees Square feet occupied

PARAMJIT SHARMA

Direct Method Example

Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation ? Custodial Operating Departments Machining INR 400,000 ? ? ? ? ? Assembly INR 700,000 ? ? ?

INR 360,000 INR 90,000 ?

PARAMJIT SHARMA

Direct Method Example

Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation INR 0 INR 360,000 (360,000) ? ? Custodial INR 90,000 Machining Assembly INR 400,000 INR 700,000 144,000 ? ? ? ? ?

INR 360,000

20 20 + 30

INR 144,000

Apportionment base: Number of employees

PARAMJIT SHARMA

Direct Method Example

Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation INR 0 INR 360,000 (360,000) ? ? Custodial INR 90,000 Operating Departments Machining INR 400,000 144,000 ? ? Assembly INR 700,000 216,000 ? ?

INR 360,000

30 20 + 30

= INR 216,000

Apportionment base: Number of employees

PARAMJIT SHARMA

Direct Method Example

Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation INR 0 INR 360,000 (360,000) (90,000) INR 0 Custodial INR 90,000 Operating Departments Machining INR 400,000 144,000 30,000 INR I74,000) Assembly INR 700,000 216,000 ? ?

INR 90,000

25,000 25,000 + 50,000

= INR 30,000

Apportionment base: Square feet occupied

PARAMJIT SHARMA

Direct Method Example

Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation INR 0 INR 360,000 (360,000) (90,000) INR 0 Custodial INR 90,000 Machining Assembly INR 400,000 INR 700,000 144,000 30,000 216,000 60,000

INR 174,000 INR 276,000

INR 90,000

50,000 25,000 + 50,000

= INR 60,000

Apportionment base: Square feet occupied

PARAMJIT SHARMA

Overhead Analysis Sheet

Items
Indirect wages Indirect materials General overhead Amenities to staff Employers contribution to E.S.I. Power Basis Total (Rs.) Production Department P1 3,000 2,000 400 3,000 320 600 P2 3,000 3,000 500 2,500 400 1,600 P3 4,000 3,000 600 3,000 1,500 1,200 3,800 480 1,500 100 Service Department Office 10,000 1,100 Workshop 5,000 1,850 2,500

Depreciation

Actual Actual Direct wages (4:5:6) No.of employees (6:5:6:3:5) Direct Wages (4:5:6) H.P. of machine X Machine hours worked (6:16:15:1) 15% of value of machinery Machine hours (2:4:3) Direct wages (4:5:6)

25,000 10,950 1,500 12,500

15,750 70,700

4,500 13,820 2,600 3,360 19,780

5,250 16,250 5,200 4,200 25,650

3,750 16,330 3,900 5,040 25,270 12,600 (-12,600 -

2,250 11,700 (-) 11,700 -

Apportionment of workshop overhead Apportionment of office overhead

Allocated overhead Total

PARAMJIT SHARMA

Bharat Engineering Works Departmental Overhead Distribution Statement (For 12 Months)

Particulars of Expenses Rent Power Indirect wages Depreciation of machinery Electricity Canteen expenses Direct wages Basis of Distribution Floor space (30:25:45:20) H.P. of machine (65:30:30:40) Direct Wages (12:14:18:8) Value of machine (50:60:80:10) Light points (7:7:9:5) No. of workers (2:3:6:2) Actual Total Rs. A 36,000 8,250 5,200 22,000 5,600 6,500 8,000 91,550 Re-distribution of expenses of service department to the production departments on the basis of service rendered 30%: 20%:50% Allocated overhead total (A) 9,000 3,250 1,200 5,500 1,400 1,000 --21,350 +5,970 27,320 3,200 8.5375 Production Deptts. B 7,500 1,500 1,400 6,600 1,400 1,500 --19,900 +3,980 23,880 4,800 4.975 C 13,500 1,500 1,800 8,800 1,800 3,000 --30,400 +9,950 40,350 9,600 4.203 Service Dept. S 6,000 2,000 800 1,100 1,000 1,000 8,000 19,900 -19,900 Nil

Effective labour hours (see workings) (No. of worker x working hours) (B) Labour hour rate (A B)

PARAMJIT SHARMA

Step Method
Once a service departments costs are apportioned, other service department costs are not allocated back to it.

Service Department (Cafeteria)

Operating Department (Machining)

Service Department (Custodial)

Operating Department (Assembly)

PARAMJIT SHARMA

Step Method
Custodial will have a new total to Apportion to operating departments; its own costs plus those costs allocated from the cafeteria.

Service Department (Cafeteria)

Operating Department (Machining)

Service Department (Custodial)

Operating Department (Assembly)

PARAMJIT SHARMA

Step Method
1 Identify the SD which renders service to larger Nos of other Deptts 2 Distribute its Costs to other Deptts , Including service Department 3 Identify the next service Department. Which renders service to the next largest Nos 4 Continue the process till Amount is Exhausted

5 If all SD renders service to = No of Departments. Than cost of SD with largest amount be taken first
PARAMJIT SHARMA

Step Method Example

We will use the same data used in the direct method example.
Cafeteria Departmental costs before allocation Number of employees Square feet occupied INR 360,000 15 5,000 Custodial INR 90,000 10 2,000 Machining Assembly

INR 400,000 INR 700,000 20 30 25,000 50,000

Service Department Cafeteria Custodial

Apportionment Base Number of employees Square feet occupied

PARAMJIT SHARMA

Step Method Example

Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation ? Custodial Operating Departments Machining INR 400,000 ? ? ? Assembly INR 700,000 ? ? ?

INR 360,000 INR 90,000 ? ? ? ?

Apportion Cafeteria costs first since it provides more service than Custodial.
PARAMJIT SHARMA

Step Method Example

Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation INR 0 INR 360,000 (360,000) Custodial INR 90,000 60,000 ? ? Operating Departments Machining Assembly

INR 400,000 INR 700,000 ? ? ? ? ? ?

INR 360,000

10 10 + 20 + 30

= INR 60,000

Apportionment base: Number of employees

PARAMJIT SHARMA

Step Method Example

Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation INR 0 Custodial Operating Departments Machining Assembly

INR 360,000 INR 90,000 (360,000) 60,000 ? ?

INR 400,000 INR 700,000 120,000 ? ? ? ? ?

INR 360,000

20 10 + 20 + 30

= INR 120,000

Apportionment base: Number of employees

PARAMJIT SHARMA

Step Method Example

Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation INR 0 INR 360,000 (360,000) Custodial INR 90,000 60,000 ? ? Operating Departments Machining INR 400,000 120,000 ? ?
= INR 180,000

Assembly INR 700,000 180,000 ? ?

INR 360,000

30 10 + 20 + 30

Apportionment base: Number of employees

PARAMJIT SHARMA

Step Method Example

Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation INR 0 INR 360,000 (360,000) Custodial INR 90,000 60,000 (150,000) INR 0 Operating Departments Machining INR 400,000 120,000 ? ? Assembly INR 700,000 180,000 ? ?

New total = INR 90,000 original custodial cost plus INR 60,000 apportioned from the cafeteria.

PARAMJIT SHARMA

Step Method Example

Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation INR 0 Custodial Operating Departments Machining Assembly

INR 360,000 INR 90,000 (360,000) 60,000 (150,000) INR 0

INR 400,000 INR 700,000 120,000 50,000 INR 170,000 180,000 ? ?

INR 150,000

25,000 25,000 + 50,000

= INR 50,000

Apportionment base: Square feet occupied

PARAMJIT SHARMA

Step Method Example

Service Departments Cafeteria Departmental costs before allocation Cafeteria allocation Custodial allocation Total after allocation INR 0 Custodial Operating Departments Machining Assembly

INR 360,000 INR 90,000 (360,000) 60,000 (150,000) INR 0

INR 400,000 INR 700,000 120,000 50,000 180,000 100,000

INR 170,000 INR 280,000

INR 150,000

50,000 25,000 + 50,000

= INR 100,000

Apportionment base: Square feet occupied

PARAMJIT SHARMA

Comparison of Methods
Totals after allocation Method Direct Step Reciprocal Machining Department INR 574000 570,000 Assembly Department INR 976000 980,000

Results are similar to step method

PARAMJIT SHARMA

SECONDARY OVERHEAD DISTRIBUTION SUMMARY

Particulars Total Rs.

Base

Service Departments (Rs.)

Production Departments

P
Factory overhead
Add : Service Dept.costs

Q
75,000

R
1,05,000

S
30,000

X
1,93,000

Y
64,000

Z
83,000

5,95,000

Given

45,000

No. of Employees (50:40:50: 100:125:85) DLHs Rs.80,000 in (6:3:4:3:4) Area (Rs.1,33,000 in (10:30:15: 15) DLHs (Rs.66,000 in 4:3:4)

-45,000

5,000

4,000

5,000

10,000

12,500

8,500

-80,000

24,000

12,000

16,000

12,000

16,000

-1,33,000

19,000

57,000

28,500

28,500

S Total OHEs of prod.depts

0 5,95,000

-66,000

24,000 3,00,000

18,000 1,35,000

24,000 1,60,000

PARAMJIT SHARMA

Reciprocal Services Method

Interdepartmental services are given full recognition rather than partial recognition as with the step method.

Service Department (Cafeteria)

Operating Department (Machining)

Service Department (Custodial)

Operating Department (Assembly)

Because of its mathematical complexity, the reciprocal method is rarely used. PARAMJIT SHARMA

Reciprocal Services Methods

Trial & Error Method Repeated Distribution Method

Algebraic Simultaneous Equation Method
PARAMJIT SHARMA

Reciprocal Services Methods Trial & Error Method

Cost Of one Service Dept (Say A ) is apportioned To another Service Dept (Say B) based on service rendered The cost of another dept (B) plus its share In the cost of first service department (A) Is again apportioned to first service department The amount so apportioned to A will again be apportioned to the service department B The process continues till amount becomes negligible

PARAMJIT SHARMA

Calculation Of Total Costs Of Service Departments

Service Departments (Rs)

X
Total Exp as per Primary Distribution 23,400

Y
30,000 2,340

Charge

10% 0f Rs 23,400 (X) to Y 20% of Rs.32,340 (Y) to X 10% of Rs.6,468 (X) to Y 20% of Rs.647 (Y) to X 6,468

647 129 13 3

10% of Rs.129 (X) to Y (Since Rs.3 toof be apportioned 20% Rs.12 (Y) to X is very small distribution process is stopped )

Total
PARAMJIT SHARMA

30,000

33,000

Secondary Overhead Distribution Summary

Particulars Production Departments (Rs.) A Total expenses as per primary overhead distribution summary Add Service Dept. Costs : X : Rs.30,000 at 20%, 40% & 30% to A,B, and C Y : Rs.33,000 at 40%, 20% & 20% to A, B & C Total 80,000 B 70,000 C 50,000 2,00,000 Total Rs.

6,000 13,200

12,000 6,600

9,000 6,600

27,000 26,400

99,200 88,600

65,600

2,53,400

PARAMJIT SHARMA

Reciprocal Services Methods

Repeated Distribution Method

1 Distribute the cost of a service Dept . to the Production and service department Using the percentage 2 Apportion the cost of 2nd service department (Aggregate) to production and other service department as per % given
3 Use the same procedure with other service departments

till the cost of service departments become negligible

PARAMJIT SHARMA

Question
A factory is having 3 prod . Departments A,B & C, and 2 service Departments Boiler House and Pump Room. The boiler house was to depend upon the pump Room for supply of water and in turn , depends upon the boiler house for supply of steam power for driving the pump The expenses incurred by the production department during the period are: A Rs 8,00,000,B Rs 7,00,000 And C Rs 5,00,000.The expenses of Boiler house are Rs 2,34,000 and the Pump House Rs 3,00,000.The expenses of Boiler House and Pump house are Apportioned to the prod. departments on the following basis A 20% 40% B 40% 20% C 30% 20% BH 20% PR 10% -

Expenses Of Boiler House Expenses Of Pump Room

PARAMJIT SHARMA

Secondary Overhead Distribution Summary

Particulars Total Rs
Basis Prod Departments (Rs) A B C

Service Dept (Rs)

Boiler 2,34,000 Pump

P Distribution 25,34,000 given Add Service Dept. Costs Boiler House Pump Room Boiler House Pump Room
Boiler House Pump House Boiler House Pump House

8,00,000 7,00,000 5,00,000

3,00,000

0
0 0 0 0 0 0 0

20:40:30:10 46,000 40:20:20:20 1,29,360 20:40:30:10 12,936 40:20:20:20 20::40:30:20 2,587

93,600 64,680 5,872

1,294

70,200 6 4,680 19,404

1,294

-2,34,000 64,680 -64,680

1,293

23,400

-3,23,400 6,468

-6,468 129 -129 2 -2

259 52 5 1

517 26 10 1

388 26 8 0

-1293 25 -25 0

40:20:30:20 20:40:20:20 40:20:20:20

Total 25,34,000

PARAMJIT SHARMA 9,92,000 8,86,000 6,56,000

Reciprocal Services Methods

Algebraic Simultaneous Equation Method

Total Costs of Service Departments are Expressed in algebraic equation Equations are developed on the basis of Primary distribution & % of service rendered to each other Total Costs of Service Departments can Be calculated by solving EQUATIONS

PARAMJIT SHARMA

Algebraic Equation

X= OHEs + % of Y Y= OHEs + % of X Service Department OHES can be apportioned R S M N P R 20% 30% 40% S 10%

30% 40% 10% 20% PARAMJIT SHARMA

Quick Check Data

Service Departments ADMIN Departmental costs before allocation Number of employees Number of PCs BACS Operating Departments Accounting Others

Rs 1,80,000 Rs 90,000 15 5 12 20

Rs 1,90,000 Rs 9,00,000 20 80 18 102

The direct method of Apportionment is used.

Allocation bases: Business school administration costs (ADMIN): Number of employees
Business

administration computer services (BACS): Number of personal computers PARAMJIT SHARMA

Quick Check
How much cost will be apportioned from Administration to Accounting? a. INR 36,000 b. INR144,000 c. INR180,000 d. INR 27,000

PARAMJIT SHARMA

Quick Check
How much cost will be apportioned from Administration to Accounting? a. INR 36,000 BACS Accounting b. INR144,000 ADMIN Departmental costs before allocation INR 180,000 INR 90,000 INR 190,000 c. INR180,000 ADMIN allocation 180,000 36,000 d. INR 27,000
INR180,000X 20 20 + 80 = INR 36,000

Others INR 900,000 144,000

PARAMJIT SHARMA

Quick Check
How much total cost will be apportioned from ADMIN and BACS combined to the Accounting Department? a. INR 52,500 b. INR135,000 c. INR 270,000 d. INR 49,500

PARAMJIT SHARMA

Service Departments ADMIN

Quick Check
BACS

Operating Departments Accounting Others

Departmental costs before allocation INR 180,000 90,000 INR 190,000 INR 900,000 How much total costINR will be apportioned from ADMIN allocation 180,000 36,000 144,000 ADMIN and BACS combined Accounting BACS allocation 90,000 to the 13,500 76,000 INR 239,000 INR 1,120,500

otal after allocation Department?

a. INR 52,500 b. INR 135,000 c. INR 270,000 d. INR 49,500

INR 90,000 18 18 + 102 = INR 13,500

PARAMJIT SHARMA

Quick Check Data

Service Departments ADMIN Departmental costs before allocation Number of employees Number of PCs BACS Operating Departments Accounting Others

INR 180,000 INR 90,000 INR 190,000 INR 900,000 15 5 20 80 12 20 18 102

The step method of apportionment is used.

Apportionment bases: Business school administration costs (ADMIN): Number of employees
Business

administration computer services (BACS): Number of personal computers PARAMJIT SHARMA

Quick Check
How much total cost will be apportioned from ADMIN and BACS combined to the Accounting Department? a. INR 35,250 b. INR 49,072 c. INR 18,000 d. INR 26,333

PARAMJIT SHARMA

Quick Check
How much total cost will be apportioned from ADMIN and BACS combined to the Accounting Department? a. INR 35,250 b. INR 49,072 c. INR 18,000 d. INR 26,333Service Departments Operating Departments
ADMIN Departmental costs before allocation ADMIN allocation BACS allocation Total after allocation INR 180,000 (180,000) BACS INR 90,000 8,571 98,571 Accounting INR 190,000 34,286 14,786 Others INR 900,000 137,143 83,786

INR INR PARAMJIT SHARMA

INR 239,071 INR 1,120,929

Overhead

Appropriation

Few Questions

PARAMJIT SHARMA

4. SECONDARY DISTRIBUTION SUMMARY

Cost of service department primary distribution Canteen Power house (light) Power house (power) Stores Time keeping & accounts Repair shop Basis of apportionment --No. of employee (6:5:4) No. of light points (3:4:5) House Power (3:2:3) No. of requisitions (4:3:5) No. of employee (6:5:4) Value of assets (2:3:4) Total Rs. 63,000 1,500 1,200 4,000 3,600 3,000 4,500 80,800 Production Department P1 20,000 600 300 1,500 1,200 1,200 1,000 25,800 P2 18,000 500 400 1,000 900 1,000 1,500 23,300 P3 25,000 400 500 1,500 1,500 800 2,000 31,700

Allocated overhead Total

PARAMJIT SHARMA

1. Overhead Analysis Sheet

Items Indirect wages Indirect materials General overhead Amenities to staff Employers contribution to E.S.I. Power Basis Actual Actual Direct wages (4:5:6) No.of employees (6:5:6:3:5) Direct Wages (4:5:6) H.P. of machine X Machine hours worked (6:16:15:1) 15% of value of machinery Machine hours (2:4:3) Direct wages (4:5:6) Allocated overhead Total Total (Rs.) 25,000 10,950 1,500 12,500 1,200 3,800 Production Department P1 3,000 2,000 400 3,000 320 600 P2 3,000 3,000 500 2,500 400 1,600 P3 4,000 3,000 600 3,000 1,500 480 1,500 100 Service Department Office 10,000 1,100 Workshop 5,000 1,850 2,500

Depreciation

15,750 70,700

4,500 13,820 2,600 3,360 19,780

5,250 16,250 5,200 4,200 25,650

3,750 16,330 3,900 5,040 25,270 12,600 (-) 12,600 -

2,250 11,700 (-) 11,700 -

Apportionment of workshop overhead Apportionment of office overhead

PARAMJIT SHARMA

2. OVERHEAD ANALYSIS SHEET

Items
Rent and rates General lighting Indirect wages Power Depreciation Direct wages Indirect materials Apportionment of Service Departments Overhead S1 S2

Basis

Total (Rs.) 5,000 600 1,939 1,500 10,000 1,695 966 21,700

Production Deptt .(Rs) P1 1,000 100 600 600 2,400 300 5,000 P2 1,250 150 400 300 3,200 200 5,500 P3 1,500 200 600 500 4,000 200 7,000

Service Deptt( Rs). S1 1,000 100 300 100 200 1,500 3,200 S2 250 50 39 200 195 266 1,000

Floor space (4:5:6:4:1) Light points (2:3:4:2:1) Direct wages (600:400:600:300:39) H.P. of Machine (6:5:5:1) Value of machines (12:16:20:1:1) Actual Actual

Direct wages (3:2:3) Given (2:3:5) Total (A) Working hours (B)

1,200 200 21,700 6,400 2,560 2.50

800 300 6,600 3,000 2.20

1,200 500 8,700 1,500 5.80

(-) 3,200 Nil

(-) 1,000 Nil

Overhead rate per working hour [(A) (B)]

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COST OF PRODUCT X Direct material Direct Labour Prime Cost Factory Overhead : P1 : 4 x 2.50 P2 : 5 x 2.20 P3 : 3 x 5.80 Cost of Product X 10.00 11.00 17.40

( Rs)
50.00 30.00 80.00

38.40 118.40

PARAMJIT SHARMA

3. SECONDARY OVERHEAD DISTRIBUTION SUMMARY

Particulars Total Rs.

Base

Service Departments (Rs.)

Production Departments

P
Factory overhead
Add : Service Dept.costs

Q
75,000

R
1,05,000

S
30,000

X
1,93,000

Y
64,000

Z
83,000

5,95,000

Given

45,000

No. of Employees (50:40:50: 100:125:85) DLHs Rs.80,000 in (6:3:4:3:4) Area (Rs.1,33,000 in (10:30:15: 15) DLHs (Rs.66,000 in 4:3:4)

-45,000

5,000

4,000

5,000

10,000

12,500

8,500

-80,000

24,000

12,000

16,000

12,000

16,000

-1,33,000

19,000

57,000

28,500

28,500

S Total OHEs of prod.depts

0 5,95,000

-66,000

24,000 3,00,000

18,000 1,35,000

24,000 1,60,000

PARAMJIT SHARMA

5. OVERHEAD DISTRIBUTION STATEMENT

Particulars of Expenses Depreciation
Rent, Rates & Taxes

Basis of Apportionment Assets value (10:5:3:1) Floor space (5:4:1:2) H.P. of machine (10:5:4:1) Assets value (10:5:3:1) No. of workers (100:50:50:25) Light points (25:15;10:10) Actual Actual

Total Rs. 38,000 18,000 12,500 9,500 5,400 3,600 8,000 4,000 99,000

Production Deptts. X 20,000 7,500 6,250 5,000 2,400 1,500 ----42,650 +11,150 53,800 +7,021 60,821 Y 10,000 6,000 3,125 2,500 1,200 900 ----23,725 +7,433 31,158 +7,021 38,179

Service Deptts. A 6,000 1,500 2,500 1,500 1,200 600 5,000 4,000 22,300 -22,300 Nil --Nil B 2,000 3,000 625 500 600 600 3000 --10,325 +3,717 14,042 -14,042 Nil

Power Ins.on assets Canteen exp. Electricity Direct wages Direct material

Re-distribution of expenses of Deptt. A among X, Y and B in ratio 3:2:1 Re-distribution of expenses of Dept. B between X and Y equally Allocated overhead

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7. STATEMENT SHOWING OVERHEAD EXPENSES OF PRODUCTION DEPARTMENTS A AND B

Particulars of Expenses Direct material Direct labour Depreciation Rent,Rates & Tax Insurance Power Canteen exp. Electricity Basis of Apportionment Actual Actual Value of Assets (10:5:3:1) Floor space (5:4:1:2) Value of Assets (10:5:3:1) H.P. of machine (10:5:4:1) No. of workers (100:50:50:25) Light points (25:15;10:10) Total Rs. 5,000 15,000 95,000 18,000 7,600 10,000 5,400 2,400 1,58,400 Production Deptts. A ----50,000 7,500 4,000 5,000 2,400 1,000 69,900 +13,380 83,280 26,010 1,09,290 B ----25,000 6,000 2,000 2,500 1,200 600 37,300 +8,920 46,220 2,890 49,110 Service Deptts. C 3,000 10,000 15,000 1,500 1,200 2,000 1,200 400 34,300 (-) 34,300 Nil --Nil D 2,000 5,000 5,000 3,000 400 500 600 400 16,900 +12,000 28,900 (-)28,900 Nil

Re-distribution of expenses of service department C Rs. 12,000 to D and balance of Rs. 22,300 to A:B= 3:2 Re-distribution of expenses of service Department D to A:B = 9:1 Allocated overhead total

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a h t

s k n

PARAMJIT SHARMA