INSTRUCTION Write the appropriate term/s on the space provided below.

Overhead Costs 1. These are costs of a product or service other than direct materials and direct labor.
Costing system that identifies predetermined factory overhead rate in recording
Normal Costing 2.
factory overhead.
Standard overhead This rate is used in normal costing to estimate factory overhead costs of a certain
3.
rate job or product.
The production capacity that is based generally on increases and decreases in
Expected Actual
4. factory overhead and on the quantity of production output for the next accounting
Capacity
period.
When the production capacity exists, a firm can take on an incremental order
Idle Capacity 5.
without increasing the fixed costs.
Overapplied
Production 6. This results when applied factory overhead is greater than actual factory overhead.
Overheadand
Operations 7. These are the departments that are directly involved in the manufacturing process.
Management These are the departmental expenses that cannot be traced to a particular
Indirect Costs 8.
department since these expenses are being shared by various departments.
National and local This entity considered departmentalization as an important factor in achieving its
9.
government goal in providing quality services to its citizens.
A method of allocating service department costs wherein reciprocal services
Reciprocal Method 10.
among the service departments are being considered in the computation.
ct materials and direct labor.
verhead rate in recording

overhead costs of a certain

reases and decreases in

put for the next accounting

n an incremental order

han actual factory overhead.

the manufacturing process.
raced to a particular
various departments.
rtant factor in achieving its

ein reciprocal services

n the computation.
Problem 5 - A (Simultaneous Equation
SONAX LTD. has Method) Departments and two Service Departments. The overhead dist
three Production
PROBLEM showed the following totals:

Production Departments:
A 25,000
B 31,000
C 28,000
Service Departments:
S 8,000
T 13,900

REQUIRED:
Using the following bases of apportionment, distribute the cost of service departments under the Simultaneous Equ

A B C S
Department S 30% 20% 40% -
Department T 40% 15% 25% 20%

SOLUTION:

Given:
X = Expense of Department S
Y = Expense of Department T

Substitution:
X = 8,000 + 1/5Y
X = 8,000 + 1/5Y
Y = 13,900 + 1/10X

Simultaneous Equation Method

Substituting the value of X:

Y = 13,900 + 1/10 (8,000 + 1/5Y)
Y = 13,900 + 800 + 1/50Y

Y = 14,700 + 1/50Y
50Y = 735,000 + Y

50Y - Y = 735,000
49Y = 735,000
Y = 15,000

Putting the value of Y:

X = 8,000 + 1/5 (15,000)
X = 8,000 + 3,000
X = 11,000

∴
X = 11,000 Total expenses of Department S
Y = 15,000 Total expenses of Department T

Overhead Distribution or Distribution of the Cost of Service Departments under Simultaneous Equation Me

Particulars A B C
Primary Distribution 25,000 31,000 28,000
Distribution of Expenses of Dept.
in the ratio 3:2:4:1 3,300 2,200 4,400
Distribution of Expenses of Dept.
in the ratio 8:3:5:4 6,000 2,500 3,750
34,300 35,700 36,150
ments. The overhead distribution sheet

der the Simultaneous Equation Method:

T
10%
-
multaneous Equation Method:

S T
8,000 13,900

(11,000) 1,100

3,000 (15,000)
0 0
Problem 5 - B (Distribution of Overheads)
MotherChair,Ltd. has three production departments,X, Y and Z and two service departments, S1 a
PROBLEM
The following figures are available for a certain production period:

Overhead Items Amount (in Rupees or Rs.)

Indirect Wages 16,000
Indirect Materials 12,000
Depreciation - Machinery 30,000
Depreciation - Building 10,000
Rent, Rates and Taxes 10,000
Electric Power for Lighting 1,000
Electric Power for Machinery 15,000
General Expenses 15,000

Total X Y
Direct Material (Rs.) 60,000 20,000 10,000
Direct Wages (Rs.) 40,000 15,000 15,000
Floor Area 50,000 15,000 10,000
Valule of Machinery(Rs.) 300,000 80,000 100,000
Horse power (HP) of Machinery 150 60 50
Number of lights points 50 15 10
Labour Hours 15,000 5,000 5,000

REQUIRED:
Prepare a statement showing the distribution of overheads among the production and service departments on the m

Particular Basis of apportionment Total

Indirect Wages Direct Wages 16,000
Indirect Material Direct material 12,000
Depreciation on Machinery Value of Machine 30,000
Depreciation on Buidlings Floor Area 10,000
Rent, Rates & Taxes Floor Area 10,000
Electric Power for lighting No. of light points 1,000
Electric Power for machinery H.P. of machinery 15,000
General Expenses Labour Hours 15,000
Total 109,000
 and Z and two service departments, S1 and S2.
on period:

Z S1 S2
20,000 6,000 4,000
5,000 3,000 2,000
10,000 5,000 10,000
60,000 30,000 30,000
30 5 5
10 10 5
2,000 1,000 2,000

oduction and service departments on the most quitable basis.

Production Departments
X Y
15/40 * 16,000 6,000 15/40 * 16,000 6,000 5/40 * 16,000
1/3 * 12,000 4,000 1/6 * 12,000 2,000 1/3 * 12,000
4/15 * 30,000 8,000 1/3 * 30,000 10,000 1/5 * 30,000
3/10 * 10,000 3,000 1/5 * 10,000 2,000 1/5 * 10,000
3/10 * 10,000 3,000 1/5 * 10,000 2,000 1/5 * 10,000
3/10 * 1,000 300 1/5 * 1,000 200 1/5 * 1,000
6/15 * 15,000 6,000 1/3 * 15,000 5,000 1/5 * 15,000
1/3 * 15,000 5,000 1/3 * 15,000 5,000 2/15 * 15,000
35,300 32,200
Production Departments
Z S1 S2
2,000 3/40 * 16,000 1,200 1/20 * 16,000 800
4,000 1/10 * 12,000 1,200 1/15 * 12,000 800
6,000 1/10 * 30,000 3,000 1/10 * 30,000 3,000
2,000 1/10 * 10,000 1,000 1/5 * 10,000 2,000
2,000 1/10 * 10,000 1,000 1/5 * 10,000 2,000
200 1/5 * 1,000 200 1/10 * 1,000 100
3,000 1/30 * 15,000 500 1/30 * 15,000 500
2,000 1/15 * 15,000 1,000 2/15 * 15,000 2,000
21,200 9,100 11,200
Problem 5-C (Using the 3 Alternative Methods of Distributing SDC)
PRT Company has a Service Departments A and B and Production Departments X and Y with the
PROBLEM
following data:

Service Departments Production Departments

A B X Y
Direct Costs P 150 P 300 P 5,000 P 6,000
Services performed by Dept. A 40% 40% 20%
Services performed by Dept. B 20% 70% 10%

REQUIRED:
Determine the total cost of Department A, B, X and Y after allocating the Service Department Costs under each
alternative method.

D E P A R T M E N T
A B X Y
1. Using direct method
2. Using step-down method
3. Using reciprocal method

1. Direct Method

Particular A B X Y
Pre allocation costs P 150 P 300 P 5,000 P 6,000
Allocation costs
Service Department A -150 100 50
Service Department B -300 262.5 37.5
Post Allocation costs 0 0 5362.5 6,087.50

2. Step - down method

Particular A B X Y
Costs P 150 P 300 P 5,000 P 6,000
Service Dept A Allocation:
To B: -60 60
To X: -60 60
To Y: -30 30

Service Dept B Allocation

To X: -315 315
To Y: -45 45
Total - - 5,375 6,075

3. Reciprocal Method

A = 150 + 20% (B)

B = 300 + 40% (A)

B = 300 + .4 [ 150 + .2 (B) ]

B = 300 + 60 + 8B
B - 8 B = 360
92 B = 360
B = 391.3

A = 150 + 20% (391.30)

A = 150 + 78.26
A = 228.3

Particular A B X Y
Costs P 150 P 300 P 5,000 P 6,000
Distribution of Expenses of Dept.
in the ratio 4:4:2 -228.3 91.3 91.3 45.7
Distribution of Expenses of Dept. -391.3
in the ratio 2:7:1 78.3 273.9 39.1

Total - - 5365.2 6084.8

ments X and Y with the

nt Costs under each