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Udesh Fast Track Group-2 (CA Intermediate)

[
Cost and Management Accounting
Overheads
Meaning of • It is the cost which cannot be conveniently traced to or identified with any
Overheads particular cost unit.
• Generally, it is the aggregate of indirect material cost, indirect labour cost
and indirect expenses.
• It is also known as indirect or supplementary costs.

Classification of • It means determination of categories, classes or groups in which overheads

Overheads costs may be sub–divided.
• It can be done on various basis which are as follows:
Ø On the basis of function
Ø On the basis of nature
Ø On the basis of element
Ø On the basis of control

Overheads on the • Under this basis, overheads are classified as factory overheads, office and
basis of Function administrative overheads and selling and distribution overheads.
• Factory Overheads – It represent all those indirect costs that are incurred
in the manufacturing process e.g. stock keeping expenses, consumable
stores, factory rent, depreciation of plant, etc.
• Office and Administrative Overheads – It represents costs which are
associated with the general management and administration of the
organization e.g. office rent, directors fees, depreciation of office building,
accounts and audit expenses etc.
• Selling and Distribution Overheads – It represents all the expenses
incurred for selling and distribution of products e.g. salaries of sales staff,
commission, sales promotion expenses, delivery van expenses, transit
insurance etc.

Overheads on the • Variable Overheads – These costs vary with the volume of activity.
basis of Nature Generally, these tend to vary in same proportion as of output. E.g. indirect
material, lubricants etc.
• Fixed Overheads – These costs are incurred period wise and doesn’t vary
upto a certain output limit. E.g. depreciation of plant, salary paid to
permanent employees, insurance etc.
• Semi-Variable Overheads – These costs contain both fixed and variable
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components and are thus partly affected by fluctuations in the level of

activity. E.g. telephone and internet expenses, electricity cost etc.

Overheads on the • Indirect Material – These don’t form part of finished product (cost object)
basis of Element e.g. lubricants, cleaning cloth etc.
• Indirect Labour – These can’t be allocated but can be apportioned e.g.
foreman salary, supervisor salary etc.
• Indirect Expenses – These are expenses other than direct expenses e.g.
insurance, depreciation, advertisement etc.

Overheads on the • Controllable Costs – These can be controlled by the managerial influence
basis of and proper policies e.g. wages and salary, material cost etc.
Controllability • Uncontrollable Costs – These can’t be controlled by managerial influence
e.g. depreciation, rent etc.

Advantages of • Helps in the ascertainment of marginal cost.

classifying • It helps in controlling costs.
overheads into fixed
• It helps in the preparation of flexible budget.
and variable
• It helps in determining separate absorption rates for fixed and variable
overheads.
• It helps in decision making.

Steps for • Estimation and collection of data related to overheads

Accounting and • Distribution of overheads by allocation, apportionment and re-
Control of apportionment.
Overheads
• Absorption of overheads to the cost object or cost unit or cost centre
• Calculating and treating over and under absorption of overheads

Allocation of • It is the process of charging the full amount of cost directly to a cost centre
Overheads for which it was incurred.
• E.g. salary paid to indirect worker can be allocated to the respective
departments.
• These are also called as traceable overheads because they can be traced to
the specific department.

Apportionment of • It is the process of charging the common costs to various cost centers on
Overheads some basis.
• Overheads which are not wholly incurred for a particular department are
apportioned only.
• E.g. factory rent is paid as a whole, so it should be apportioned to all
departments.
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Re-apportionment • It is the process of charging the service department expenses to the

of Overheads production department.
• Methods for Re-apportionment are as follows:
Ø Direct re-distribution method
Ø Step method or non-reciprocal method
Ø Reciprocal method
• Simultaneous equation method
• Trial and error method
• Repeated distribution method

Absorption of • It is the process of charging or recovering or absorbing of overheads from

Overheads the output produced in respective departments.
• In other words, it is the allotment of overheads to cost units by means of
rates separately calculated for each cost centre.
!"#$% "'()ℎ($*+ ", #ℎ( -"+# -(.#)(
• 𝐴𝑏𝑠𝑜𝑟𝑝𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 = !"#$% /0$.#01 ", #ℎ( 2$+(

• Variable manufacturing overheads are absorbed on the basis of actual

production.
• Fixed manufacturing overheads are absorbed on the basis of normal
capacity.

Methods of • A method of overhead absorption is considered appropriate if the total

absorption of amount of overhead absorbed in a period does not fluctuate materially from
overheads the actual expenses incurred in the period.
• Direct Material Cost Percentage Method
!"#$% "'()ℎ($*+ ", #ℎ( -"+# -(.#)(
• 𝐴𝑏𝑠𝑜𝑟𝑝𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 =
!"#$% 34)(-# 5$#(4)$% 6"+#
• This method is suitable:
• where the prices of material don’t fluctuate much.
• where the output is uniform
• where the proportion of overheads tot total cost is insignificant

• Direct Labour Cost Percentage Method

!"#$% "'()ℎ($*+ ", #ℎ( -"+# -(.#)(
• 𝐴𝑏𝑠𝑜𝑟𝑝𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 = !"#$% 34)(-# 7$2"0) 6"+#
• This method is suitable:
• where labour is the major factor of production
• where labour rates do not fluctuate widely
• where both labour employed and work done are of uniform type.
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• Prime Cost Percentage Method

!"#$% "'()ℎ($*+ ", #ℎ( -"+# -(.#)(
• 𝐴𝑏𝑠𝑜𝑟𝑝𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 =
!"#$% 8)41( 6"+#
• This method is suitable:
• where output is uniform
• where both the quantity of direct materials and direct labour
hours are constant

• Labour Hour Rate Method

!"#$% "'()ℎ($*+ ", #ℎ( -"+# -(.#)(
• 𝐴𝑏𝑠𝑜𝑟𝑝𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 =
!"#$% 7$2"0) 9"0)+
• This method is suitable where manual labour is a dominant factor of
production.

• Machine Hour Rate Method

!"#$% "'()ℎ($*+ ", #ℎ( -"+# -(.#)(
• 𝐴𝑏𝑠𝑜𝑟𝑝𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 = !"#$% 5$-ℎ4.( 9"0)+
• This method is suitable where major portion of production is
performed by machinery.

• Rate Per Unit of Output Method

!"#$% "'()ℎ($*+ ", #ℎ( -"+# -(.#)(
• 𝐴𝑏𝑠𝑜𝑟𝑝𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 = !"#$% 0.4#+
• This method is suitable where similar type of goods are produced in
large quantities.

Type of Overhead • :-#0$% $1"0.# ", "'();($*+

Normal Rate = :-#0$% 2$+(
Rates <0*=(#(* $1"0.# ", "'();($*+
• Pre-determined Rate = <0*=(#(* 2$+(
!"#$% "'();($*+ ", #;( ,$-#)">
• Blanket Rate = !"#$% 2$+(
?'();($*+ ", #;( @$)#4-0%$) *(@$)#1(.#
• Departmental Rate = :-#0$% 2$+( ", #;( *(@$)#1(.#

Blanket Overheads • It is one single overheads absorption rate for the whole factory.
Rate • 𝐵𝑙𝑎𝑛𝑘𝑒𝑡 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑎𝑡𝑒 =
<0*=(#(* @)"*0-#4". "'()ℎ($* -"+#+ ,") #ℎ( Aℎ"%( ,$-#")>
!"#$% 0.4#+ ", #ℎ( +(%(-#(* 2$+(

• It involves disadvantages of too much averaging.

• It is useful in companies producing a main product in continuous processes,
e.g. chemical plant, glass factory etc.
• It should be applied in case
Ø when company deals in only one major product
Ø In case of multiple products, the product must pass through all
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departments with same length of time in each department.

Over and Under • Overheads are absorbed on the basis of pre-determined rates, which are
recovery of based on budgeted output and budgeted overheads.
overheads • But actual output or overheads may be different from budgeted.
• As a result absorbed overheads may be more (Over absorption) or less
(Under absorption).

Treatment of Under • Use of Supplementary Rate

or Over absorbed • It is used when:
overheads
a) There is a serious estimation errors
b) When there is a substantial change in the level of activities
c) When there is a major change in the production method
d) In case of contract on cost plus basis.
• There are two types of supplementary rates viz. positive and negative
• Under absorption is corrected by using positive supplementary rate, i.e.,
the unrecovered amount of overhead cost is added to the cost of sales,
work-in-progress and unsold stock.
• Over absorption is corrected by using negative supplementary rate, i:e.,
the excess recovery of overhead cost is deducted from the cost of sales,
work-in-progress and unsold stock

• Carry Over of Overheads

• It is to be used when it is hoped that an over absorption in the current
period will be more or less neutralized by under absorption in the next
period and vice versa.
• E.g. in case of seasonal industries or cyclical businesses or in case of
new projects
• The criticism against this method is that overheads of a particular period
are not charged to that period entirely.
• Carryover of overheads adversely affects inter-temporal comparisons
which may hinder managerial planning and control.

• Transfer to Costing Profit and Loss Account

• It is to be used if under or over absorption is of relatively very small
value or due to abnormal factors like fire, strike etc.
• The amount of under or over absorption due to above factors should be
charged to the costing profit and loss account.

Causes of Under or • Estimates of overheads may prove erroneous

Over recovery of • Actual output buffers from budgeted output
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overheads • Actual hours worked buffering from budgeted hours

• Increase in price of direct materials
• Change in wage rate
• Change in the ratio of skilled and unskilled workers
• Degree of mechanization
• Inappropriate method of absorption
• Capacity utilization
• Seasonal fluctuations
• Cyclical fluctuations
• Change in work situations

Treatment of • These are costs of formulating the policy, directing the organization and
administration controlling the operation of an undertaking.
overheads • E.g. office rent, director’s fees, managers’ salaries etc.
• Treatment
• Charge to Costing P&L Account – In this method, administrative
overheads should be treated as fixed cost as they are concerned with the
formulation of policy and charged to Costing P&L Account.
• Apportionment between production and selling & distribution – In this
method, it is assumed that administrative overheads are incurred both
for production and for selling & distribution and thus to be divided on
some equitable basis amount them.
• Treat as separate element of total cost – In this method, administration
overheads ore considered as a cost of a distinct and identifiable
operation of the organization necessary to carry on its activity and thus
are recovered on some equitable basis.

Treatment of • Selling expenses are incurred for the purpose of promoting, marketing etc.
Selling & of different products.
Distribution • Distribution expenses are relating to delivery and dispatch of goods to
Overheads customers.
• Treatment
• Allocation or apportionment – In this method, expenses are either
allocated or apportioned to the various cost centres or goods on some
equitable basis.
• Absorption or recovery – In this method, expense are recovered by
using any of the methods like percentage on selling price, rate per unit
sold etc.

Type of Capacity • Installed or Rated Capacity

• Practical Capacity
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• Normal Capacity
• Actual Capacity
• Idle Capacity

Installed or Rated • It is the maximum capacity of producing goods or services.

Capacity • It is determined on the basis of technical specification or technical
evaluation.
• It is also known as theoretical capacity.

Practical Capacity • It is actually utilized capacity of plant.

• It is also known as operating capacity or net capacity or available capacity.
• It is computed after considering repairs, maintenance, idle time etc.
• It is also used as a basis for determining overhead rates

Normal Capacity • It is the capacity expected to be utilized or achieved over a period of time
under normal circumstances.
• It is computed after adjusting for planned maintenance.
• It is also known as average capacity or capacity based on sales expectancy.

Actual Capacity • It is the capacity actually achieved during the period.

• It is presented as a percentage of installed capacity.

Idle Capacity • It is the capacity which cannot be effectively utilized in production.

• It can be either due to normal reasons or abnormal reasons.
• Normal idle capacity is the difference between installed capacity and
normal capacity i.e. Installed capacity – Normal capacity
• Abnormal idle capacity is the difference between normal capacity and
actual capacity if actual is lower than normal i.e. Normal capacity – Actual
capacity

Treatment of Idle • If it is due to unavoidable reasons such as repairs, maintenance etc. than a
Capacity supplementary rate may be used to recover it from the production.
• If it is due to avoidable reasons such as power failure, faulty planning etc.
then it should be charged to costing profit and loss account.
• If it is due to seasonal factors then, the cost should be charged to cost of
production by inflating overhead rates.
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Overhead Cost Bases of Apportionment

1) (i) Rent and other building expenses Floor area, or volume of department
(ii) Lighting and heating (conditioning)
(iii) Fire precaution service
(iv) Air-conditioning
2) (i) Perquisites Number of workers
(ii) Labour welfare expenses
(iii) Time keeping
(iv) Personnel office
(v) Supervision
3) (i) Compensation to workers Direct wages
(ii) Holiday pay
(iii) ESI and PF contribution
(iv) Perquisites
4) General overhead Direct labour hour, or direct wages or
machine hours
5) (i) Depreciation of plant and machinery Capital values
(ii) Repairs and maintenance of plant & machinery
(iii) Insurance of stock
6) (i) Power/steam consumption Technical estimates
(ii) Internal transport
(iii) Managerial salaries
7) Lighting expenses (light) No. of light points or area or metered units
8) Electric power (machine operation) Horse power or machines, or number of
machine hour or value of machines or units
consumed
9) (i) Material handling Weight of materials, or volume of
(ii) Stores overhead materials, or value of materials or unit of
materials

Cost of the Service Department Basis of Re-apportionment

1) Maintenance and repair shop Direct labour hours, machine hours, direct labour
2) Planning and progress wages
3) Tool room
4) Canteen and welfare No. of direct workers, no. of employees etc.
5) Hospital and dispensary
6) Personnel department
7) Time-keeping No. of card punched, no. of employees
8) Computer section Computer hours, specific allocation to departments
9) Power house (electric lighting cost) Floor area, cubic content, no. of electric point
10) Power house (electric power cost) Horse power, kwh, horse power hours, kwh hours
11) Stores department No. of requisition, weight or value of material
12) Transport department Crane hours, truck hours, truck tonnage etc.
13) Fire protection Capital values
14) Inspection Inspection hours
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Practical Questions

Question – 1 [SM]
SK Ltd. has three production departments and four service departments. The expenses for these departments
as per Primary Distribution Summary are as follows:
Production Departments: (`) (`)
A 30,00,000
B 26,00,000
C 24,00,000 80,00,000
Service Departments: (`) (`)
Stores 4,00,000
Time-keeping and accounts 3,00,000
Power 1,60,000
Canteen 1,00,000 9,60,000
The following information is also available in respect of the production departments:
Dept. A Dept. B Dept. C
Horse power of Machine 300 300 200
Number of workers 20 15 15
Value of stores requisition in (`) 2,50,000 1,50,000 1,00,000
Prepare a statement apportioning the costs of service departments over the production departments.
[Answer - `34,20,000; `29,00,000; `26,40,000]

Question – 2 [SM]
SK Ltd. is a manufacturing company having three production departments, ‘A’, ‘B’ and ‘C’ and two service
departments ‘X’ and ‘Y’. The following is the budget for March 2022:
Total (`) A (`) B (`) C (`) X (`) Y (`)
Direct material 1,00,000 2,00,000 4,00,000 2,00,000 1,00,000
Direct wages 5,00,000 2,00,000 8,00,000 1,00,000 2,00,000
Factory rent 4,00,000
Power 2,50,000
Depreciation 1,00,000
Other Overheads 9,00,000
Additional information:
Area (Sq. ft.) 500 250 500 250 500
Capital value of assets (` lakhs) 20 40 20 10 10
Machine hours 1,000 2,000 4,000 1,000 1,000
Horse power of machines 50 40 20 15 25
A technical assessment of the apportionment of expenses of service departments is as under:
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A B C X Y
Service Dept. ‘X’ (%) 45 15 30 - 10
Service Dept. ‘Y’ (%) 60 35 - 5 -
Required:
(i) Prepare a statement showing distribution of overheads to various departments
(ii) Prepare a statement showing re-distribution of service department expenses to production departments
using Trial and error method.
[Answer – (i) `2,70,000; `3,70,000; `6,00,000; `4,75,000; `5,35,000; (ii) `8,48,200; `6,50,500;
`7,51,300]

Question – 3
An engine manufacturing company has two production departments: (i) Mobile and (ii) Boat and two service
departments: (i) Maintenance and (ii) Factory. Budgeted cost data and relevant cost drivers are as follows:
Departmental Costs: `
Mobile 6,00,000
Boat 17,00,000
Factory 3,00,000
Maintenance 2,40,000
Cost Drivers:
Factory department: No. of employees
Mobile department 1,080 employees
Boat department 270 employees
Maintenance department 150 employees
1,500 employees
Maintenance department: No. of work orders
Mobile department 570 orders
Boat department 190 orders
Maintenance department 40 orders
800 orders
Required:
(a) Allocate the service department costs by using direct method.
(b) Allocate the service department costs by using non-reciprocal method/step method.
[Answer – (a) `10,20,000; `18,20,000; (ii) 10,18,500; `18,21,500]

Question – 4 [SM]
SK Ltd., have three departments which are regarded as production departments. Service departments’ costs
are distributed to these production departments using the “Step Ladder Method” of distribution. Estimates of
factory overhead costs to be incurred by each department in the forthcoming year are as follows. Data
required for distribution is also shown against each department:
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Factory Overhead Direct labour No. of

Department Area in sq.m.
(`) hours employees
Production:
X 1,93,000 4,000 100 3,000
Y 64,000 3,000 125 1,500
Z 83,000 4,000 85 1,500
Service:
P 45,000 1,000 10 500
Q 75,000 5,000 50 1,500
R 1,05,000 6,000 40 1,000
S 30,000 3,000 50 1,000
The overhead costs of the four service departments are distributed in the same order, viz., P, Q, R, and S
respectively on the following basis.
Department Basis
P Number of employees
Q Direct labour hours
R Area in square metres
S Direct labour hours
You are required to:
(a) Prepare a schedule showing the distribution of overhead costs of the four service departments to the
three production departments; and
(b) Calculate the overhead recovery rate per direct labour hour for each of the three production
departments.
[Answer – (a) `3,00,000; `1,35,000; `1,60,000; (b) `75; `45; `40]

Question – 5 [Nov 2018]

M/s SK Limited has its own power plant and generates its own power. Information regarding power
requirements and power used are as follows:
Production Dept. Service Dept.
A B X Y
(Horse power hours)
Needed capacity production 20,000 25,000 15,000 10,000
Used during the month of May 16,000 20,000 12,000 8,000
During the quarter ended September 2018, costs for generating power amounted to `12.60 lakhs out of which
`4.20 lakhs was considered as fixed cost.

Service Dept. X renders service to A, B and Y in the ratio of 6:4:2 whereas department Y renders service to A
and B in the ratio 4:1. The direct labour hours of Department A and B are 67,500 hours and 48,750 hours
respectively. Required:
1) Prepare overheads distribution sheet
2) Calculate factory overhead per labour hour for the department A and B
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[Answer – (1) `6,75,000; `5,85,000; (2) `10; `12]

Question – 6 [SM]
A company which sells four products, some of them unprofitable, proposes discounting the sale of one of
them. The following information is available regarding income, costs and activity for the year ended 31st
March.
Product A Product B Product C Product D
Sales (`) 3,00,000 5,00,000 2,50,000 4,50,000
Cost of sales (`) 2,00,000 4,50,000 2,10,000 2,25,000
Area of storage (Sq. Ft.) 50,000 40,000 80,000 30,000
Number of parcels sent 1,00,000 1,50,000 75,000 1,75,000
Number of invoices sent 80,000 1,40,000 60,000 1,20,000
Selling and Distribution overheads ad the basis of allocation are:
Basis of allocation to products
Fixed Costs (`)
Rent and insurance 30,000 Sq. Ft.
Depreciation 10,000 Parcel
Salesmen’s salaries and expenses 60,000 Sales volume
Administrative wages and salaries 50,000 No. of invoices
Variable Costs:
Packing wages & materials `0.20 sper parcel
Commission 4% of sales
Stationery `0.10 per invoice
You are required to prepare Profit & Loss Statement, showing the percentage of profit of loss to sales for each
product.
[Answer – 9.50%; -12.10%; -8.80%; 26.40%]

Question – 7
The following information relates to the activities of a production department for a certain period in a factory:
Material used `72,000
Direct wages `60,000
Hours of machine operation 20,000
Labour hours worked 24,000
Overhead chargeable to the department `48,000
On one order carried out in the department during the period, the relevant data were:
Material used `4,000
Labour Hours 1,650
Direct Wages `3,300
Machine hours 1,200
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Prepare a comparative statement of cost of this order by using the following three methods of recovery of
overheads:
(i) Direct Labour Hour Rate Method
(ii) Direct Labour Cost Rate Method
(iii) Machine Hour Rate Method
[Answer – (i) `10,600; (ii) `9,940; (iii) `10,180]

Question – 8
A machine costs `90,000 and is deemed to have a scrap value of 5% at the end of its effective life (19 years).
Ordinarily the machine is expected to run for 2,400 hours per annum but it is estimated that 150 hours will be
lost for normal repairs and maintenance and further 750 hours will be lost due to staggering. The other details
in respect of the machine shop are:
(i) Wages, bonus and provident fund contribution of each of two operators (each operator is in charge of
two machines) `6,000 per year
(ii) Rent and rates of the shop `3,000 per year
(iii) General Lighting of the shop `250 per month
(iv) Insurance premium for the machine `200 per quarter
(v) Cost of repairs and maintenance per machine `250 per month
(vi) Shop supervisor salary `500 per month
(vii) Power consumption of the machine per hour 20 units, rate of power
per 100 units `10
(viii) Other factory overheads attributable to the shop `4,000 per annum
There are four identical machines in the shop. The supervisor is expected to devote one-fifth of his time
for supervising the machine. Compute a comprehensive machine hour rate from the above details.
[Answer - `12]

Question – 9
The following particulars refer to process used in the treatment of a material subsequently incorporated in a
component forming part of an electrical appliance:
(a) The original cost of the machine used (purchased in January 2015) was `10,000. Its estimated life is 10
years, the estimated scrap value at the end of its life is `1,000 and the estimated working time per year
(50weeks of 44 hours) is 2,200 hours of which machine maintenance etc. is estimated to take up 200
hours. No other loss of working time is expected. Setting up time estimated at 100 hours. (Bank holidays
are to be ignored).
(b) Electricity used in the machine during production is 16 units per hour at a cost of 9 p. per unit.
(c) The machine requires a chemical solution which is replaced at the end of each week at a cost of `20 each
time.
(d) The estimated cost of maintenance per year is `1,200
(e) Two attendants control the operation of the machine together with five other identical machines. Their
combined weekly wages, insurance and the employer’s contributions to holiday pay amount to `120.
(f) Department and general works overheads allocated to this machine for the year amounts to `2,000.
 14

You are required to calculate the machine- hour rate in each of the following cases:
(i) If setting up time is taken as productive time and the current is taken during setting up
(ii) If setting up time is taken as productive time and the current is not taken during setting up
(iii) If setting up time is taken as unproductive time but current is taken during setting up
(iv) If setting up time is taken as unproductive time and no current is taken during setting up
[Answer – (i) `4.49; (ii) `4.42; (iii) `4.73; (iv) `4.65]

Question – 10
From the following data of textile factory machine room, compute an hourly machine rate, assuming that the
machine room will work on 90% capacity throughout the year and that a breakdown allowance of 10%, in
addition, is reasonable.

There are 3 days holiday at Deepawali, 2 days at Holi and 2 days Christmas, exclusive of Sundays. The
factory works 8 hours a day and 4 hours on Saturday. The year in question is not a leap year.
Number of machines (each of the same type) 40
Expenses: ` Per annum
Power 3,12,000
Light 64,000
Salaries to foremen 1,20,000
Lubricating oil 6,600
Repairs to machines 1,44,600
Depreciation 78,560
Total 7,25,760
[Answer - `10]

Question – 11 [SM, Similar Jan 2021]

A machine shop has 8 identical Drilling Machines run by 6 operators. The machines cannot be worked
without an operator wholly engaged on it. The original cost of all these 8 machines works out to `8 lakhs.
The particulars are furnished for a 6 months period:
Normal available hours per months 208
Absenteeism (without pay) hours p.m. 18
Leave (with pay) hours p.m. 20
Normal idle time unavoidable hours p.m. 10
Average rate of wages per day of 8 hours `20
Production bonus estimated 15% on wages
Value of power consumed `8,050
Supervision and Indirect Labour `3,300
Lighting and Electricity `1,200
Theses particulars are for a year:
Repairs and maintenance including consumable is 3% on value of machines
Insurance `40,000
 15

Depreciation 10% on original cost

Other sundry works expenses `12,000
General Management expenses – allocated `54,530
You are required to work out a comprehensive machine hour rate for the Machine Shop.
[Answer – `23.86]

Question – 12 [MTP – Nov 2018]

In a factory, a machine is considered to work for 208 hours in a month. It includes maintenance time of 8
hours and set up time of 20 hours. The expense data relating to the machine are as under:
Ø Cost of the machine is `5,00,000. Life 10 years.
Ø Estimated scrap value at the end of life is `20,000
Ø Repairs and maintenance per annum `60,480
Ø Consumable stores per annum `47,520
Ø Rent of building per annum (The machine under reference occupies 1/6 of area) `72,000
Ø Supervisor’s Salary per month (Common to three machines) `6,000
Ø Wages of operator per month per machine `2,500
Ø General lighting charges per month allocated to the machine `1,000
Ø Power 25 units per hour at `2 per unit

Power is required for productive purposes only. Set up time, though productive, does not require power. The
Supervisor and Operator are permanent. Repairs and maintenance and consumable stores vary with the
running of the machine. Required: Calculate a two-tier machine hour rate for (a) set up time and (b) running
time.
[Answer – (a) `52.50; (b) `152.50]

Question – 13 [SM, Similar Nov 2022]

SK Enterprises undertakes different job, A, B and C. All of them require the use of special machine and also
the use of a computer. The computer is hired and the hire charges work out of `4,20,000 per annum. The
expenses regarding the machine are estimated as follows:
Rent for the quarter `17,500
Depreciation per annum `2,00,000
Indirect charges per annum `1,50,000
During the first month of operation the following details were taken from the job register:
Job A B C
Number of hours the machine was used:
Without the use of computer 600 900 -
With use of computer 400 600 1,000
You are required to compute the machine hour rate:
(a) For the firm as a whole for the month when the computer was used and when the computer was not used.
(b) For the individuals job A, B and C
 16

[Answer – (a) `10; `27.50; (b) `17; `17; `27.50]

Question – 14 [RTP – Nov 2022]

SE Limited manufactures two products – A and B. The company had budgeted factory overheads amounting
to `36,72,000 and budgeted direct labour hour of 1,80,000 hours. The company uses pre-determined
overhead recovery rate for product costing purposes.

The department-wise break-up of the overheads and direct labour hours were as follows:
Particulars Budgeted Overheads Budgeted Direct Labour Rate per Direct
Hours Labour Hour
Department Pie `25,92,000 90,000 hours `28.80
Department Qui `10,80,000 90,000 hours `12.00
Total `36,72,000 1,80,000 hours

Additional information:
Each unit of product A requires 4 hours in department Pie and 1 hour in department Qui. Also, each unit of
product B requires 1 hours in department Pie and 4 hours in department Qui.

This was the first year of the company’s operation. There was no WIP at the end of the year. However, 1,800
and 5,400 units of Products A and B were on hand at the end of the year.

The budgeted activity has been attained by the company. You are required to:
(i) Determine the production and sales quantities of both products ‘A’ and ‘B’ for the above year.
(ii) Ascertain the effect of using a pre-determined overhead rate instead of department-wise rates on the
company’s income due to its effect on stock value.
(iii) Calculate the difference in the selling price due to the use of pre-determined overhead rate instead of
using department-wise overhead rates. Assume that the direct costs (material and labour costs) per unit
of products A and B were `25 and `40 respectively and the selling price is fixed by adding 40% over
and above these costs to cover profit and selling and administration overhead.
[Answer – (i) Production – 18,000; 18,000; Sales 16,200; 12,600; (ii) Profit increase by `90,720; (iii)
Product A underpriced by `35.28 and Product B over priced by `35.28]

Question – 15 [SM]
Job No. 198 was commenced on October 10 and completed on November 1. Materials used were `6,000 and
labour charged directly to the job was `4,000. Other information is as follows:

Machine No. 215 used for 40 hours, the machine hour rate being `35.
Machine No. 160 used for 30 hours, the machine hour rate being `40.
6 welders worked on the job for 5 days of 8 hours each: the direct labour hour per welder is `20.

Expenses not included for calculating the machine hour or direct labour hour rate totaled `20,000, total direct
wages for the period being `2,00,000. Ascertain the works costs of job no. 198.
[Answer - `17,800]
 17

Question – 16 [SM]
In a manufacturing unit, overhead was recovered at a predetermined rate of `25 per man-day. The total
factory overhead expenses incurred and the man-days actually worked were `41.50 lakhs and 1.50 lakhs days
respectively.

Out of the 40,000 units produced during a period, 30,000 were sold. On analyzing the reasons, it was found
that 60% of the unabsorbed overheads were due to defective planning and the rest were attributable to
increase in overhead costs. How would unabsorbed overheads be treated in cost accounts?
[Answer – Under recovery `4,00,000]

Question – 17 [SM]
The total overhead expenses of a factory are `4,50,608. Taking into account the normal working of the
factory, overhead was recovered from production at `1.25 per hour. The actual hours worked were 2,93,104.
How would your proceed to close the books of accounts, assuming that besides 7,800 units produced of
which 7,000 were sold, there were 200 equivalent units in work-in-progress. On investigation it was found
that 50% of the unabsorbed overhead was on account of increase in the cost of indirect material and indirect
labour and the other 50% was due to factory’s inefficiency. Also give the profit implication of the method
suggested.
[Answer – Under recovery `84,228]

Question – 18 [SM]
SK Ltd. manufactures a single product and absorbs the production overheads at a pre-determined rate of `10
per machine hour. At the end of current financial year, it has been found that actual production overheads
incurred were `6,00,000. It includes `45,000 on account of written off obsolete stores and `30,000 being
the wages paid for the strike period under an award. The production and sales data for the current year is as
under:
Production:
Finished goods 20,000 units
Work-in-progress 8,000 units
(50% complete in all respects)
Sales:
Finished goods 18,000 units
The actual machine hours worked during the period were 48,000. It has been found that one-third of the
under-absorption of production overheads was due to lack of production planning and the rest was
attributable to normal increase in costs.
(a) Calculate the amount of under-absorption of production overheads during the current year
(b) Show the accounting treatment of under-absorption of production overheads.
[Answer – Under recover `45,000]
 18

Practice Questions

Question – 19 [SM]
Service department expenses are:
Boiler house `3,00,000
Pump Room `60,000
Total `3,60,000
The allocation basis is:
Production Department Service Department
A B Boiler House Pump Room
Boiler House 60% 35% - 5%
Pump Room 10% 40% 50% -
[Answer - `2,10,769; `1,49,231]

Question – 20 [SM]
Suppose the expenses of two production departments A and B and two service departments X and Y are as
under:
Department Amount (`) Apportionment
Basis
Y A B
Dept-X 2,00,000 25% 40% 35%
Dept-Y 1,50,000 - 40% 60%
Dept-A 3,00,000
Dept-B 3,20,000
Prepare a statement apportioning the costs of service departments over the production departments using step
method.
[Answer - `4,60,500; `5,10,000]

Question – 21 [SM, Similar Nov 2020, Similar RTP May 2020]

SK Ltd. has three production departments P1, P2 and P3 and two service departments S1 and S2. The
following data are extracted from the records of the Company for the month of October:
`
Rent and rates 62,500
General lighting 7,500
Indirect Wages 18,750
Power 25,000
Depreciation on machinery 50,000
Insurance of machinery 20,000
Other information:
P1 P2 P3 S1 S2
Direct Wages (`) 37,500 25,000 37,500 18,750 6,250
Horse power of machine used 60 30 50 10 --
 19

Cost of machinery (`) 3,00,000 4,00,000 5,00,000 25,000 25,000

Floor Space (Sq. Ft.) 2,000 2,500 3,000 2,000 500
Number of light points 10 15 20 10 5
Production hours worked 6,225 4,050 4,100 -- --
Expenses of the service departments, S1 and S2 are reapportioned as below:
P1 P2 P3 S1 S2
S1 20% 30% 40% - 10%
S2 40% 20% 30% 10% -
Required:
(a) Compute overhead rate per production hour of each production department
(b) Determine the total cost of product X which is processed for manufacture in department P1, P2 and
P3 for 5 hours, 3 hours and 4 hours respectively, given that its direct material cost is `625 and direct
labour cost is `375.
[Answer – (a) `9.75; `15.78; `20.52; (b) `1,178.17]

Question – 22 [RTP – May 2019]

SK Company has the following account balances and distribution of direct charges on 31st March, 2021.
Production Dept. Service Dept.
Total
Machine shop Packing Gen. Plant Stores
Allocated Overheads: (`) (`) (`) (`) (`)
Indirect labour 29,000 8,000 6,000 4,000 11,000
Maintenance material 9,900 3,400 1,600 2,100 2,800
Misc. supplies 5,900 1,500 2,900 900 600
Superintendent’s salary 16,000 - - 16,000 -
Cost & payroll salary 80,000 - - 80,000 -
Overheads to be apportioned:
Power 78,000
Rent 72,000
Fuel and Heat 60,000
Insurance 12,000
Taxes 8,400
Depreciation 1,20,000

The following data were compiled by means of the factory survey made in the previous year:
Floor Space Radiator No. of H.P.
Investment
(sq. ft.) Sections Employees hours
Machine shop 2,000 45 20 8,00,000 3,500
Packing 800 90 12 2,40,000 500
General Plant 400 30 4 80,000 -
Stores & Maintenance 1,600 60 8 1,60,000 1,000
 20

Expenses charged to the stores and maintenance departments are to be distributed to the other departments by
the following percentages:
Machine shop 50%; Packing 20%; General Plant 30%;
General Plant overheads is distributed on the basis of number of employees.
(a) Prepare an overhead distribution statement with supporting schedules to show computations and basis of
distribution.
(b) Determine the service department distribution by simultaneous equation method.
[Answer – (a) `1,97,250; `80,625; `1,25,775; `87,550; (b) `3,38,071; `1,53,129]

Question – 23 [July 2021]

SNS Trading Company has three Main Departments and two Service Departments. The data for each
department is given below:
Departments Expenses Area (in Sq. Mtr.) Number of
(`) employees
Main Department:
Purchase Department 5,00,000 12 800
Packing Department 8,00,000 15 1700
Distribution Department 3,50,000 7 700
Service Department:
Maintenance Department 6,40,000 4 200
Personnel Department 3,20,000 6 250
The cost of Maintenance Department and Personnel Department is distributed on the basis of ‘Area in Square
Meters’ and ‘Number of Employees’ respectively:
You are required to:
(i) Prepare a statement showing the distribution of expenses of service departments to the main departments
using the “Step Ladder Method” of overhead distribution.
(ii) Compute the rate per hour of each Main Department, given that, the Purchase Department, Packing
Department and Distribution Department works for 12 hours a day, 24 hours a day and 8 hours a day
respectively. Assume that there are 365 days in a year and there are no holidays.
[Answer – (i) `7,96,000; `12,61,000; `5,53,000; (ii) `181.74; `143.95; `189.38]

Question – 24 [MTP – Nov 2019]

SK Ltd. manufactures luggage trolleys for airports. The factory, in which the company undertakes all of its
production, has two production departments- ‘Fabrication’ and ‘Assembly’, and two service departments-
‘Stores’ and ‘Maintenance’. The following information have been extracted from the company’s budget for
the financial year ended 31st March:
Allocated Overhead Costs `
Fabrication Department 15,52,000
Assembly Department 7,44,000
Stores Department 2,36,000
Maintenance Department 1,96,000
Other Overheads `
 21

Factory rent 15,28,000

Factory building insurance 1,72,000
Plant & machinery insurance 1,96,000
Plant & Machinery Depreciation 2,65,000
Subsidy for staffs’ canteen 4,48,000

Direct Costs ` `
Fabrication Department:
Material 63,26,000
Labour 8,62,000 71,88,000
Assembly Department:
Material 1,42,000
Labour 13,06,000 14,48,000
The following additional information is also provided:
Fabrication Assembly Stores Maintenance
Department Department Department Department
Floor area (square meters) 24,000 10,000 2,500 3,500
Value of plant & machinery (`) 16,50,000 7,50,000 75,000 1,75,000
No. of stores requisitions 3,600 1,400 --- ---
Maintenance hours required 2,800 2,300 400 ---
No. of employees 120 80 38 12
Machine hours 30,00,000 60,000
Labour hours 70,000 26,00,000
Required:
(a) Prepare a table showing the distribution of overhead costs of the two service departments to the two
production departments using step method; and
(b) Calculate the most appropriate overhead recovery rate for each department.
(c) Using the rates calculated in part (b) above, calculate the full production costs of the following job
order:
Job number IGI2019
Direct Materials `2,30,400
Direct Labour:
Fabrication Department 240 hours @ `50 per hour
Assembly Department 180 hours @ `50 per hour
Machine hours required:
Fabrication Department 210 hours
Assembly Department 180 hours
[Answer – (a) `36,01,649; `17,35,351; (b) `1.20 per machine hour; `0.67 per labour hour; (c)
`2,51,773]
 22

Question – 25
SK Ltd. is an online book retailer. They have four departments. The two sales departments are Corporate
Sales and Consumer Sales. The two support-departments are Administrative (Human resources, Accounting),
and Information Systems. Each of the sales departments conducts merchandising and marketing operations
independently.
The following data are available for October:
Departments Revenues No. of Employees Processing Time used
(in minutes)
Corporate Sales `16,67,750 42 2,400
Consumer Sales `8,33,875 28 2,000
Administrative - 14 400
Information Systems - 21 1,400
Cost incurred in each of four departments for October, 2018 are as follows:
Departments `
Corporate Sales 12,97,751
Consumer Sales 6,36,818
Administrative 94,510
Information Systems 3,04,720
The company uses number of employees as basis to allocate administrative costs and processing time as a
basis to allocate Information Systems costs.
Required:
(a) Allocate the support department costs to the sales departments using the direct method.
(b) Rank the support departments based on percentage of their services rendered to other support
departments. Use this ranking to allocate support costs based on the step-down allocation method.
(c) How could you have ranked the support departments differently?
(d) Allocate the support department costs to two sales departments using the reciprocal allocation method.
[Answer – (a) `15,20,668; `8,13,131; (b) `15,91,478; `8,14,321; (d) `15,20,641; `8,13,158]

Question – 26 [MTP – May 2019]

From the details furnished below you are required to compute a comprehensive machine-hour rate:
Original purchase price of the machine (subject to depreciation `3,24,000
at 10% p.a. on original cost)
Normal working hours for the month 200 hours
(The machine works to only 75% of capacity)
Wages of Machine man `125 per day of 8 hours
Wages for helper (machine attendant) `75 per day of 8 hours
Power cost for the month worked `15,000
Supervision charges apportioned for the machine center for the month `3,000
Electricity & lighting for the month `7,500
Repairs & maintenance (machine) including consumable stores per month `17,500
 23

Insurance of Plant & Building (apportioned) for the year `16,250

Other general expense per annum `27,500

The workers are paid a fixed Dearness allowance of `1,575 per month. Production bonus payable to workers
in terms of an award is equal to 33.33% of basic wages and dearness allowance. Add 10% of the basic wage
and dearness allowance against leave wages and holidays with pay to arrive at a comprehensive labour-wage
for debit to production.
[Answer - `406.85]

Question – 27 [SM, MTP May 2018]

A machine shop cost centre contains three machines of equal capacities.

Three operators are employed on each machine, payable `20 per hour each. The factory works for forty-eight
hours in a week which includes 4 hours setup time. The work is jointly done by operators. The operators are
paid fully for the forty-eight hours. In addition, they are paid a bonus of 10 per cent of productive time. Costs
are reported for this company on the basis of thirteen four-weekly period.

The company for the purpose of computing machine hour rate includes the direct wages of the operator and
also recoups the factory overheads allocate to the machines. The following details of factory overheads
applicable to the cost centre are available:
Ø Depreciation 10% per annum on original cost of the machine. Original cost of each machine is `52,000.
Ø Maintenance and repairs per week per machine is `60.
Ø Consumable stores per week per machine are `75.
Ø Power: 20 units per hour per machine at the rate of 80 paise per unit
Ø Apportionment to the cost centre: Rent per annum `5,400, Heat and Light per annum `9,720 and
foreman’s salary per annum `12,960 and other miscellaneous expenditure per annum `18,000.
Required:
(a) Calculate the cost of running one machine for a four-week period.
(b) Calculate the machine hour rate.
[Answer – (a) `17,513.54; (b) `99.51]

Question – 28 [May 2019]

M/s SK Private Limited has purchased a machine costing `29,14,800 and its is expected to have a salvage
value of `1,50,000 at the end of its effective life of 15 years. Ordinarily the machine is expected to run for
4,500 hours per annum but it is estimated that 300 hours per annum will be lost for normal repair &
maintenance. The other details in respect of the machine are as follows:
(i) Repair & Maintenance during the whole life of the machine are expected to be `5,40,000.
(ii) Insurance premium (per annum) 2% of the cost of the machine
(iii) Oil and Lubricants required for operating the machine (per annum) `87,384
(iv) Power consumptions: 10 units per hour @ `7 per unit. No power consumption during repair and
maintenance.
(v) Salary to operator per month `24,000. The operator devotes one third of his time to the machine.
You are required to calculate comprehensive machine hour rate.
[Answer - `180]
 24

Question – 29 [May 2019]

A manufacturing company has added a new machine to its fleet of eleven existing machines. New machine is
purchased for `12,70,000 with installation cost of `40,000. The machine has an estimated life of 10 years
and is expected to realize `90,000 as scrap at the end of its useful life. Other relevant data are as follows:
(i) Budgeted annual working hours are 2,400 based on 8 hours per day for 300 days. This includes 180
hours for plant maintenance and 120 hours of productive set-up time.
(ii) Electricity used by the new machine is 12 units per hour at a cost of `6.50 per unit. No current is
drawn during maintenance and setup.
(iii) Three operators control the operations of all the twelve machines and average rate of wages per
operator per day is `600 and production bonus is 10% of wages.
(iv) Annual insurance premium for the new machine is `12,600
(v) Annual maintenance cost of new machine including consumable stores is `32,500
(vi) Rent of the factory is `24,000 per month. Area occupied by new machine 200 sq. ft. and area occupied
by other machines is 2,800 sq. ft.
Required: Compute the comprehensive machine hour rate.
[Answer - `180]

Question – 30 [SM]
A machine costing `1,00,00,000 is expected to run for 10 years. At the end of this period its scrap value is
likely to be `9,00,000. Repairs during the whole life of the machine are expected to be `18,00,000 and the
machine is expected to run 4,380 hours per year on the average. Its electricity consumption is 15 units per
hour, the rate per unit being `5. The machine occupies one-fourth of the area of the department and has two
points out of a total of ten for lighting. The foreman has to devote about one sixth of his time to the machine.
The monthly rent for the department is `30,000 and the lighting charges amount to `8,000 per month. The
foreman is paid a monthly salary of `19,200. Find out the machine hour rate, assuming insurance is @1%
p.a. and the expenses on oil etc. are `900 per month.
[Answer - `382.85]

Question – 31 [RTP – May 2021]

A manufacturing unit has purchased and installed a new machine at a cost of `24,90,000 to its fleet of 5
existing machines. The new machine has an estimated life of 12 years and is expected to realize `90,000 as
scrap value at the end of its working life.

Other relevant data are as follows:

(i) Budgeted working hours are 2,496 based on 8 hours per day for 312 days. Plant maintenance work is
carried out on weekends when production is totally halted. The estimated maintenance hours are 416.
During the production hours machine set-up and change over works are carried out. During the set-up
hours no production is done. A total 312 hours are required for machine set-ups and change overs.
(ii) An estimated cost of maintenance of the machine is `2,40,000 p.a.
(iii) The machine requires a component to be replaced every week at a cost of `2,400.
(iv) There are three operators to control the operations of all the 6 machines. Each operator is paid `30,000
per month plus 20% fringe benefits.
 25

(v) Electricity: During the production hours including set-up hours, the machine consumes 60 units per
hour. During the maintenance the machine consumes only 10 units per hour. Rate of electricity per unit
of consumption is `6.
(vi) Department al and general works overhead allocated to the operation during last year was `5,00,000.
During the current year it is estimated to increase by 10%.
Required to compute the machine hour rate.
[Answer – 822.34]

Question – 32 [RTP – Nov 2018]

Sree Ajeet Ltd. having fifteen different type of automatic machines furnishes information as under for 2018-
2019.
(a) Overhead expenses: Factory rent `1,80,000 (floor area 1,00,000 sq. ft.), Heat and gas `60,000 and
supervision `1,50,000
(b) Wages of the operator are `200 per day of 8 hours. Operator attends to one machine when it is under set
up and two machines while they are under operation.

In respect of machine B (one of the above machines) the following particulars are furnished:
(a) Cost of machine `1,80,000, Life of machine – 10 years and scrap value at the end of its life `10,000
(b) Annual expenses on special equipment attached to the machine are estimated as `12,000
(c) Estimated operation time of the machine is 3,600 hours while set up time is 400 hours per annum.
(d) The machine occupies 5,000 sq. ft. of floor area
(e) Power cost `5 per hour while machine is in operation.

Estimate the comprehensive machine hour rate of machine B. Also find out machine costs to be absorbed in
respect of used o machine B on the following two work orders
Work order-1 Work order - 2
Machine set up time (Hours) 15 30
Machine operation time (Hours) 100 190
[Answer - `3,620; `6,935]

Question – 33 [Dec 2021, Similar Nov 2019]

SK Ltd. manufactures a single product. It recovers factory overheads at a pre-determined rate of `20 per
man-day.

During the year 2020-21, the total factory overheads incurred and the man-days actually worked were `35.50
lakhs and 1.50 lakh days respectively. Out of the amount of `35.50 lakhs, `2.00 lakhs were in respect of
wages for strike period and `1.00 lakh was in respect of expenses of previous year booked in the current
year. During the period, 50,000 units were sold. At the end of the period, 12,000 completed units were held in
stock but there was no opening stock of finished goods. Similarly, there was no stock of uncompleted units at
the beginning of the period but at the end of the period there were 20,000 uncompleted units which may be
treated as 65% complete in all respects.

On investigation, it was found that 40% of the unabsorbed overheads were due to factory inefficiency and the
rest were attributable to increase in the cost of indirect materials and indirect labour. You are required to:
 26

(i) Calculate the amount of unabsorbed overheads during the year 2020-21.
(ii) Show the accounting treatment of unabsorbed overheads in cost accounts and pass journal entry.
[Answer – (i) Under recovery `2,50,000]

Question – 34 [SM]
SK engineering factory fabricates machine parts to customers. The factory commenced fabrication of 12 Nos.
machine parts to customer’s specifications and the expenditure incurred on the job for the week ending 21st
August, is given below:
(`) (`)
Direct materials (all items) 78.00
Direct labour (manual) 20 hours @ `1.50 per hour 30.00
Machine facilities:
Machine No. I : 4 hours @ `4.50 18.00
Machine No. II: 6 hours @ `6.50 39.00 57.00
Total 165.00
Overheads @ `0.80 per hour on 20 manual hours 16.00
Total cost 181.00

The overhead rate of `0.80 per hour is based on 3,000 man hours per week; similarly, the machine hour rates
are based on the normal working of Machine Nos. I and II for 40 hours out of 45 hours per week.

After the close of each week, the factory levies a supplementary rate for the recovery of full overhead
expenses on the basis of actual hours worked during the week. During the week ending 21st August, the total
labour hours worked was 2,400 and machine Nos. I and II had worked for 30 hours and 32½ hours
respectively.

Prepare a cost sheet for the job for the fabrication of 12 Nos. machine parts duly levying the supplementary
rates.
[Answer – Total cost `200]

Question – 35 [SM]
A factory has three production departments. The policy of the factory is to recover the production overheads
of the entire factory by adopting a single blanket rate based on the percentage of total factory overheads to
total factory wages. The relevant data for a month are given below:
Department Direct Direct Direct Direct Labour Machine
Material Wages Overheads Hours Hours
Budgeted:
Machine 6,50,000 80,000 3,60,000 20,000 80,000
Assembly 1,70,000 3,50,000 1,40,000 1,00,000 10,000
Packing 1,00,000 70,000 1,25,000 50,000 -
Actual:
 27

Machining 7,80,000 96,000 3,90,000 24,000 96,000

Assembly 1,36,000 2,70,000 84,000 90,000 11,000
Packing 1,20,000 90,000 1,35,000 60,000 -

The details of one of the representative jobs produced during the month are as under:
Department Direct Direct Direct Labour Machine
Material Wages Hours Hours
Machine 1,200 240 60 180
Assembly 600 360 120 30
Packing 300 60 40 -
The factory adds 30% on the factory cost to cover administration and selling overheads and profit.
Required:
(i) Calculate the overhead absorption rate as per the current policy of the company and determine the
selling price of Job
(ii) Suggest any suitable alternative method(s) of absorption of the factory overheads and calculate the
overhead recovery rates based on the method(s) so recommended by you.
(iii) Determine the selling price of job based on the overhead application rates calculated in (ii) above.
(iv) Calculate the department wise and total under or over recovery of overheads based on the Company’s
current policy and the method(s) recommended by you.
[Answer – (i) SP = `4,660.50; (iii) `4,989.40; (iv) Under recover `39,000 and over recovery `99,000]
 28

Solution Of Practice Questions

Solution – 19
Statement of Overhead Distribution
Production
Particulars Basis Department Service Department
Dept A Dept B Boiler Pump
Expenses - - 3,00,000 60,000
Boiler House expenses 60:35:5 2,03,077 1,18,462 (3,38,462) 16,923
Pump room expenses 10:40:50 7,692 30,769 38,462 (76,923)
Total 2,10,769 1,49,231 - -
Working note – 1
Let D = Total expenses of Boiler house to be apportioned
Let E = Total expenses of pump room to be apportioned
Thus, D = 3,00,000 + (0.5)E
E = 60,000 + (0.05)D
Solving above equations, we get, D = 3,38,462 and E = 76,923

Solution – 20
Statement of Overhead Distribution
Production
Particulars Basis Department Service Department
Dept A Dept B Dept X Dept Y
Amount as given 3,00,000 3,20,000 2,00,000 1,50,000
Expenses of Dept X 40:35:25 80,000 70,000 (2,00,000) 50,000
Expenses of Dept Y 40:60 80,000 1,20,000 - (2,00,000)
Total 4,60,000 5,10,000 - -

Solution – 21
Overheads Distribution Summary
Item of Cost Basis of Apportionment P1 (`) P2 (`) P3 (`) S1 (`) S2 (`)
Direct Wages Allocation — — — 18,750 6,250
Rent and Rates Floor Area (4:5:6:4:1) 12,500 15,625 18,750 12,500 3,125
General Lighting Light Point (2:3:4:2:1) 1,250 1,875 2,500 1,250 625
Indirect Wages Direct Wages (6:4:6:3:1) 5,625 3,750 5,625 2812.5 937.5
Power H.P. of Machines (6:3:5:1) 10,000 5,000 8,333 1,667 —
Dep. of Machine Value-Machine (12:16:20:1:1) 12,000 16,000 20,000 1,000 1,000
Insurance of Machine Value-Machine (12:16:20:1:1) 4,800 6,400 8,000 400 400
46,175 48,650 63,208 38,380 12,338
Cost of Dept. S1 Apportioned
 29

Item of Cost Basis of Apportionment P1 (`) P2 (`) P3 (`) S1 (`) S2 (`)

Cost of Dept. S2 Apportioned 8,003 12,004 16,006 (40,014) 4,001
Total Overheads 6,536 3,268 4,901 1,634 (16,339)
Prod. Hrs Worked 60,714 63,922 84,115 — —
Rate per Hour (`) 6,225 4,050 4,100 — —
9.75 15.78 20.52 — —
Overheads of service cost centres Let S1 be the overhead of service cost centre S1 and S2 be the
overheads of service cost centre S2.
S1 = 38,380 + 0.10 S2
S2 = 12,338 + 0.10 S1
Substituting the value of S2 in S1 we get
S2 = 38,380 + 0.10 (12,338 + 0.10 S1)
S1 = 38,380 + 1233.8 + 0.01 S1
0.99 S1 = 39,613.8
\ S1 = `40,014
\ S2= 12,338 + 0.10 ´ 40,014 = `16339.4
Cost of Product X (`)
Direct Material 625.00
Direct Labour 375.00
Prime Cost 1,000.00
Production on Overheads
P1 5 hours ´ `9.75 = 48.75
P2 3 hours ´ `15.78 = 47.34
P3 4 hours ´ `20.52 = 82.08 _178.17
Factory Cost 1,178.17

Solution – 22
(a) Statement of Apportionment of Overheads
Production Department Service Department
Expenses Basis Machine General Stores &
Shop (`) Packing (`) Plant (`) Maint. (`)
Indirect labour Allocation 8,000 6,000 4,000 11,000
Maintenance material Allocation 3,400 1,600 2,100 2,800
Superintendent’s salary Allocation - - 16,000 -
Misc. supplies Allocation 1,500 2,900 900 600
Cost & payroll salaries Allocation - - 80,000 -
Total - 12,900 10,500 1,03,000 14,400
Power H.P. hours 54,600 7,800 - 15,600
Rent Floor space 30,000 12,000 6,000 24,000
Fuel & Heat Radiator secs. 12,000 24,000 8,000 16,000
Insurance Investment 7,500 2,250 750 1,500
 30

Taxes Investment 5,250 1,575 525 1,050

Depreciation Investment 75,000 22,500 7,500 15,000
Total 1,97,250 80,625 1,25,775 87,550

(b) Distribution of Service department expenses

Production Department Service Department
Expenses Machine Shop General Plant
(`) Packing (`) (`) Stores (`)
Total expenses [as per (a)] 1,97,250 80,625 1,25,775 87,550
Exp. Of general plant 80,872 48,524 (1,61,745) 32,349
(1,61,745 in 20:12:8)
Exp. of stores & maintenance 59,949 23,980 35,970 (1,19,899)
(1,19,899 in 50:20:30)
Total 3,38,071 1,53,129 - -
Let the total overheads of General Plant = ‘a’ and the total overheads of Stores = ‘b’
a = 1,25,775 + 0.3b……………….(i)
b = 87,550 + 0.2a…………………(ii)
Putting the value of ‘b’ in equation no. (i)
a = 1,25,775 + 0.3(87,550 + 0.2a)
a = 1,25,775 + 26,265 + 0.06a
0.94a = 1,52,040
a = 1,61,745

Putting the value of a in equation (ii)

b = 87,550 + (0.2×1,61,745) = 1,19,899

Solution – 23
(i) & (ii) Overheads Distribution Sheet
Particulars Basis Main Department Service Department
Purchase Packing Distribution Maintenance Personnel
Expenses Allocation 5,00,000 8,00,000 3,50,000 6,40,000 3,20,000
Maintenance Area 1,92,000 2,40,000 1,12,000 (6,40,000) 96,000
Department (12:15:7:6)
Expenses
Personnel No. of Ees 1,04,000 2,21,000 91,000 - (4,16,000)
Department (8:17:7)
Expenses
Total 7,96,000 12,61,000 5,53,000 - -
Total Hours 12 × 365 = 24 × 365 = 8 × 365 = - -
4,380 8,760 2,920
Rate per
hour 181.74 143.95 189.38 - -
Working Note - 1
 31

Main Department Service Department

Purchase Packing Distribution Maintenance Personnel
Area (in sq. mtr.) 12 15 7 - 6
% of service rendered by
Maintenance Department 30% 37.50% 17.50% - 15%
Number of Employees 800 1700 700 200 -
% of service rendered by
Personnel department 23.53% 50% 20.59% 5.88%
The usual method used for ranking the support departments for Step Down Allocation Method is % of
Service rendered by one Service Department to another. Based on this, Maintenance Department provides
15% (highest %) of service to Personnel Department. Thus, first maintenance department expenses should be
distributed first.

Solution – 24
(a) Table of Primary Distribution of Overheads
Basis of Total Production Dept. Service Depart.
Particulars
Apportionment Amount Fabrication Assembly Stores Maintenance
OHs Allocated Allocation 27,28,000 15,52,000 7,44,000 2,36,000 1,96,000
Direct Costs Actual - - - --- ---
Other OHs:
Floor Area
Factory rent 15,28,000 9,16,800 3,82,000 95,500 1,33,700
(48:20:5:7)
Factory bldg.. Floor Area
1,72,000 1,03,200 43,000 10,750 15,050
insurance (48:20:5:7)
Value of P&M
P&M insurance 1,96,000 1,22,038 55,472 5,547 12,943
(66:30:3:7)
Value of P&M
P&M Dep. 2,65,000 1,65,000 75,000 7,500 17,500
(66:30:3:7)
Canteen No. of employees
4,48,000 2,15,040 1,43,360 68,096 21,504
Subsidy (60:40:19:6)
53,37,000 30,74,078 14,42,832 4,23,393 3,96,697

Re-distribution of Service Departments’ Expenses:

Particulars Basis of Production Department Service Departments
Apportionment Fabrication Assembly Stores Maintenance
OH as per Primary
Primary distribution 30,74,078 14,42,832 4,23,393 3,96,697
distribution
Maintenance Hours
Maint. Depart. Cost 2,01,955 1,65,891 28,851 (3,96,697)
(28:23:4:-)
32,76,033 16,08,723 4,52,244 ---
No. of Stores
Stores Department 3,25,616 1,26,628 (4,52,244)
Requisition (18:7)
36,01,649 17,35,351 --- ---
 32

(b) Overhead Recovery Rate

Department Apportioned Basis of Overhead Overhead Recovery Rate
Overhead (`) Recovery Rate (`)
(I) (II) [(I)÷(III)]
Fabrication 36,01,649 30,00,000 Machine Hours 1.20 per Machine Hour
Assembly 17,35,351 26,00,000 Labour Hours 0.67 per Labour Hour

(c) Calculation of full production costs of Job no. IGI2014.

Particulars Amount (`)
Direct Materials 2,30,400
Direct Labour:
- Fabrication Deptt. (240 hours × `50) 12,000
- Assembly Deptt. (180 hours × `50) 9,000
Production Overheads:
- Fabrication Deptt. (210 hours × `1.20) 252
- Assembly Deptt. (180 hours × `0.67) 121
Total Production Cost 2,51,773

Solution – 25
(a) Overheads Distribution Sheet (Direct Method)
Sales Department Support Department
Particulars Basis
Corporate Consumer Admin. Inform.
Primary Distribution
Factory OHs Allocated 12,97,751 6,36,818 94,510 3,04,720
Secondary Distribution
Administrative Department 42:28:00 56,706 37,804 (94,510) -
Information Department 24:20:00 1,66,211 1,38,509 - (3,04,720)
Total 15,20,668 8,13,131 - -

(b) Determination of Ranking of support departments based on percentage of their services rendered
for step down allocation method.
Sales Department Support Department
Particulars
Corporate Consumer Admin. Inform.
No. of Employees 42/91 28/91 - 21/91
% of service rendered by 46.15% 30.77% - 23.08%
Administrative Department (Rank – I)
Processing time used 2400 2000 400 -
% of service rendered (Rank – II) 50% 41.67% 8.33% -
 33

Overheads Distribution Sheet (Step-Down Distribution Method)

Sales Department Support Department
Particulars Basis
Corporate Consumer Admin. Inform.
Primary Distribution Total 12,97,751 6,36,818 94,510 3,04,720
% service rendered by costs
(I) Admin. Department 42:28:21 43,620 29,080 (94,510) 21,810
(II) Info. System Dept. 24:20 1,78,107 1,48,423 - (3.26,530)
Total 15,91,478 8,14,321 - -

(c) The usual method used for ranking the support departments for Step Down Allocation Method is % of
Service rendered by one Service Department to another. However, another method of ranking can also be
used which is the amount of cost of service rendered.
Particulars Admin. Info. System
Cost of service rendered
Admin. Deptt. (94,510 × 23.08%) - 21,813 (Rank II)
Info. System (3,04,720 × 8.33%) 25,383 (Rank I) -

(d) Let the total cost of administrative department be ‘a’

Let the total cost of Information System be ‘b’
a = 94,510 + 0.0833b
b = 3,04,720 + 0.2308a
Solving the above equations:
a = 1,22,215 & b = 3,32,923
Sales Department Support Department
Particulars Basis
Corporate Consumer Admin. Inform.
Primary Distribution Total 12,97,751 6,36,818 94,510 3,04,720
Administrative Department 46.15%:30.77%:23.08% 56,407 3,87,605 (1,22,215) 28,203
Info. System Dept. 24:20:4 1,66,483 1,38,735 27,705 (3,32,932)
Total 15,20,641 8,13,158 - -

Solution – 26
Effective machine hours = 200 × 75% = 150
Statement of Machine Hour Rate
Particulars Amount (`)
Fixed Expenses
Depreciation [3,24,000 × 10% × (1/12)] 2,700
Total wages of machine man (working note – 1) 6,737
Total wages of helper (working note – 1) 4,945
Supervision charges 3,000
 34

Particulars Amount (`)

Electricity and lighting charges 7,500
Repair & Maintenance charges 17,500
Insurance of plant & building (16,250 ÷ 12) 1,354
Other general expenses (27,500 ÷ 12) 2,292
Fixed expenses 46,028
Effective machine hours 150
Fixed expenses per machine hour 306.85
Variable Expenses per machine hour
BC,EEE 100
Power 5 6
BCE
Machine hour rate 406.85
Working Note – 1
Particulars Total wages Machine man Total wages Helper
Wages (125/8) × 200 = 3,125 (75/8) × 200 = 1,875
Dearness allowance 1,575 1,575
(A) 4,700 3,450
(+) Production bonus (A ÷ 3) 1,567 1,150
(+) Leave Wages (A × 10%) 470 345
Total Wages 6,737 4,945

Solution – 27
Effective machine hours = (48 × 4) – (4 × 4) = 176 hours

Computation of cost of running one machine for a four week period

Fixed charges of the machine shop Per Annum
Rent 5,400
Heat and light 9,720
Forman’s salary 12,960
Other miscellaneous expenditure 18,000
46,080
FG,EHE
Fixed expenses of the machine shop for one machine for four-week 5 I×BI 6 `1,1821.54
F
Depreciation 552,000 × 10% × CK
6 400
________________________________
Total Fixed Expenses (A) 1,581.54
Variable Expenses:
Wages (48 ´ 4 ´ 20 ´ 3) 11,520
Bonus [((48 ´ 4) – 16) ´ 20 ´ 10% ´ 3] 1,056
Repairs and maintenance (60 ´ 4) 240
Consumable stores (75 ´ 4) 300
Power (192 – 16) = 176 ´ 20 units ´ 0.80 2,816
 35

Total Variable Expenses (B) 15,932

Total Expenses (A + B) 17,513.54
BL,CBI.CF
Machine hour rate = BLG
= `99.51

Solution – 28
Effective machine hours = 4,500 – 300 = 4,200
Statement of Machine hour Rate
Particulars Amount (`)
Fixed Expenses:
Repair & Maintenance (5,40,000 ÷ 15) 36,000
KN,BF,HEEOB,CE,EEE
Depreciation 5 6 1,84,320
BC
Insurance (29,14,800 × 2%) 58,296
Oil and Lubricant 87,384
Salary to operator (24,000 × 12 × 1/3) 96,000
Total Fixed Expenses 4,62,000
Effective Machine hours 4,200
Fixed cost per machine hour 110
Machine Expenses:
Power (10 × 7) 70
Machine Hour Rate 180

Solution – 29
Effective machine hours = 2,400 – 180 = 2,220 hours
Electricity consumption hours = 2,400 – 180 – 120 = 2,100 hours
Statement of Machine Hour Rate
Particulars Amount (`)
Fixed Expenses
BK,LE,EEEPFE,EEEONE,EEE 1,22,000
Depreciation 5 6
BE
I×GEE×IEE 45,000
Operator wages 5 BK
6
Production Bonus (45,000 × 10%) 4,500
Insurance premium 12,600
Maintenance cost 32,500
KF,EEE×BK 19,200
Rent of factory 5K,HEEPKEE × 2006
Fixed expenses 2,35,800
Effective machine hours 2,220
Fixed expenses per machine hour 106.22
Variable Expenses per machine hour
BK×G.CE×K,BEE 73.78
Electricity 5 K,KKE
6
Machine hour rate 180.00
 36

Solution – 30
Effective machine hours = 4,380 hours
Statement of Machine Hour Rate
Particulars Amount (`)
Fixed Expenses
B,EE,EE,EEEON,EE,EEE 9,10,000
Depreciation 5 6
BE
Rent (30,000 ´ 12 ´ ¼) 90,000
Lighting charges (8,000 ´ 12 ´ 2/10) 19,200
Foreman salary (19,200 ´ 12 ´ 1/6) 38,400
Insurance (1,00,00,000 ´ 1%) 1,00,000
Sundry expenses (900 ´ 12) 10,800
Fixed expenses(A) 11,68,400
Variable Expenses
Electricity (15 ´ 5 ´ 4,380) 3,28,500
BH,EE,EEE 1,80,000
Repairs 5 BE
6
Variable expenses (B) 5,08,500
Total expenses (A+B) 16,76,900
Effective machine hours 4,380
Machine hour rate 382.85

Solution – 31
Effective machine hours = 2,496 – 312 = 2,184 hours
Statement of Machine Hour Rate
Particulars Amount (`)
Fixed Expenses
KF,NE,EEEONE,EEE 2,00,000
Depreciation 5 BK
6
IE,EEE×BK×I 1,80,000
Operator’s Salary 5 G
6
Fringe benefits (1,80,000 ´ 20%) 36,000
Departmental and general overheads (5,00,000 ´ 110% ´ 1/6) 91,667
Fixed expenses(A) 5,07,667
Variable Expenses
Electricity [(2,496 ´ 60 ´ 6) + (416 ´ 10 ´ 6)] 9,23,520
Component replacement cost (2,400 ´ 52) 1,24,800
Machine maintenance cost 2,40,000
Variable expenses (B) 12,88,320
Total expenses (A+B) 17,95,987
Effective machine hours 2,184
Machine hour rate 822.34
 37

Solution – 32
Statement showing machine hours rate of Machine B
Particulars `
Standing Charges:
Factory rent [(1,80,000 ÷ 1,00,000) × 5,000] 9,000
Heat and Gas (60,000 ÷ 15) 4,000
Supervision (1,50,000 ÷ 15) 10,000
Depreciation [(1,80,000 – 10,000) ÷ 10] 17,000
Annual expenses on special equipment 12,000
Total fixed expenses (A) 52,000
Total Machine hours (B) 4,000
Fixed cost per hour (A ÷ B) 13

Particulars Set up rate per hour (`) Operation rate per hour (`)
Fixed cost 13.00 13.00
Power - 5.00
Wages 25.00 12.50
Machine hour rate 38.00 30.50

Statement of cost of Work Order

Particulars Work- Order – 1 Work Order - 2
Set up time cost 38×15 = 570 30×38 = 1,140
Operation time cost 100×30.5 = 3,050 190×30.5 = 5,795
Total cost 3,620 6,935

Solution – 33
(i) Amount (`)
Total production overheads actually incurred during the period 35,50,000
Less: Wages for strike period 2,00,000
Less: Expenses of previous year booked in current year 1,00,000
Net production overheads actually incurred 32,50,000
Less: Production overheads absorbed (1,50,000 × `20) 30,00,000
Under recovered overheads 2,50,000

(ii) As 40% of the under absorbed overheads i.e. `1,00,000 (`2,50,000 × 40%) were due to factor
inefficiency, this being abnormal, hence should be debited to profit and loss account.

Amount of balance under absorbed overheads = `2,50,000 – 1,00,000 = `1,50,000

Equivalent units = 50,000 + 12,000 + (20,000 ´ 65%) = 75,000
B,CE,EEE
Supplementary rate = LC,EEE 0.4#+= `2 per equivalent unit
Equivalent Units Amount (`)
Work-in-progress (20,000 units × 65% × 2) 13,000 26,000
 38

Finished stock (12,000 units × 2) 12,000 24,000

Cost of sales (50,000 units × 2) 50,000 1,00,000
Total 75,000 1,50,000

Journal Entry
Cost of Sales A/c Dr. 1,00,000
Finished goods ledger control A/c Dr. 24,000
Work-in-progress ledger control A/c Dr. 26,000
To Overheads control A/c 1,50,000
Costing P&L A/c Dr. 1,00,000
To Overheads Control A/c 1,00,000

Solution – 34
Statement of Cost
Particulars ` `
Material 78
Labour 20 hours @ `1.50 30
Machine facilities:
Machine No. I: 4 hours @ `4.50 18
Machine No. II: 6 hours @ `6.50 39
Overheads 20 hours @ `0.80 per hour 16
181
Supplementary Rates
Overheads 20 hours @ `0.20 per hour 4
Machine facilities:
Machine No. I: 4 hours @ `1.50 6
Machine No. II: 6 hours @ `1.50 9 19
Total Cost 200
Working notes:
Overheads budgeted: 3,000 hours @ `0.80 = `2,400
Actual hours: 2,400 hours
Actual rate per hour `2,400/2,400 hours = `1
Supplementary charge `0.20 (`1 – 0.80) per hour
Machine facilities:
Machine No. I Machine No. II
Budgeted (40 × `4.50) = `180 (40 × `6.50) = `260
Actual number of hours 30 32½
Actual rate per hour `6 `8
Supplementary rate per hour `6 – `4.50 = `1.50 `8 – `6.50 = `1.50
 39

Solution – 35
(i) Calculation of Overhead Recovery Rates as per the Policy i.e., (Single Blanket rate)
Departments Budgeted Factory OHs (`) Budgeted Direct Wages (`)
Machining 3,60,000 80,000
Assembly 1,40,000 3,50,000
Packing 1,25,000 70,000
Total 6,25,000 5,00,000
Total Overheads (Budgeted) 6, 25, 000
Blanket OH Recovery Rate= ´100= ´100=125%of Direct wages
Total Direct Wages (Budgeted) 5, 00, 000
Selling Price of Job No. CW 7083: `
Direct Materials (1200 + 600 + 300) 2,100.00
Direct Wages (240 + 360 + 60) ___660.00
Prime Cost 2,760.00
Add: Overheads @ 125% of Direct Wages i.e. 660 ´ 125% __825.00
Factory/Works Cost 3,585.00
Add: Administrative/Selling Overheads and Profits (3,585 ´ 30%) 1,075.50
Selling Price 4,660.50
(ii) Recommended Methods of absorption of factory overheads:
Single Blanket Overhead Recovery Rates could be used in places where work performed in each
department is fairly uniform or standardized. But here in the given problem we can observe that among
the three Departments, Machining Department is basically a machine intensive department whereas the
Assembly & Packing Department are Labour Intensive Departments. Hence application of Single
Blanket rate common to all the departments may not be suitable. Instead of applying Blanket Recovery
Rates we may recommend different rates for different departments as under:
Machining Department:
Since, machine is the pre-dominant factor of production in this department, hence machine hour rate
should be used to recover overheads:
Budgeted Factory Overhead 3, 60, 000
Machine Hour Rate = = = 4.5 per machine hour
Budgeted Machine Hour 80, 000
Assembly Department:
Direct Labour being the predominant factor of production in this department, hence Direct Labour Hour
rate should be used to recover overheads in this department.
Budgeted Factory Overhead 1, 40, 000
Direct Labour Hour Rate= = =`1.4 per Direct Labour Hour
Budgeted Direct Labour Hour 1, 00, 000 Hours
Packing Department:
Again, here also labour being the most important factor of production Direct Labour Rate should be used
to recover overheads in this department.
 40

Budgeted Factory Overhead 1, 25, 000

Direct Labour Hour Rate = = =`2.5 per Direct Labour Hour
Budgeted Direct Labour Hour 50, 000 Hours
(iii) Selling Price of Job No. CW 7083 on the basis of overhead recovery rates recommended in (ii)
above.
`
Direct Material (1200 + 600 + 300) 2,100
Direct Wages (240 + 360 + 60) 660
Prime Cost 2,760
Add: Factory Overheads:
Machining Dept (180 Machine Hour ´ 4.5 Per Machine Hour) 810
Assembly Dept.(120 Direct Labour Hour ´ 1.40 per DL Hr) 168
Packing Dept:(40 Direct Labour Hour ´ 2.5 per DL Hr) 100 1,078
Works Cost 3,838
Add: Administrative Selling Overheads & Profit (3838 ´ 30%) 1,151.40
Selling Price 4,989.40
(iv) Under/Over Recovery of Overheads:
(a) Under Current Policy (i.e., Blanket Recovery Rates)
S. Particulars Departments (`) Total
No. Machining Assembly Pocking (`)
A. Direct Wages (Actual) (`) 96,000 2,70,000 90,000
B. Overheads Recovered as per Single Blanket 1,20,000 3,37,500 1,12,500 5,70,000
Rate of 125% of Direct Wages [A ´ 125%]
C. Actual Overheads Incurred (`) 3,90,000 84,000 1,35,000 6,09,000
D. (Under)/Over Recovery of Overheads [B – C] (2,70,000) 2,53,500 (22,500) (39,000)
(b) Under the Suggested Method:
S. Particulars Departments Total
No. Machining Assembly Pocking
A. OH Recovery Method Machine Direct Labour Direct Labour
Hour Rate Hour Rate Hour Rate

B. OH Recovery Rates (`) `4.5 per `1.4 per Direct `2.5 per
Machine Hour Labour Hour Labour Hour
C. Machine Hours Worked in Machining 96,000 — —
Dept. (Hours)
D. Labour Hrs Worked in Assembly & — 90,000 60,000
Packing Dept
E. OHs Recovered: (`) Machining [C ´ 4,32,000 — —
B] — 1,26,000 —
Assembly: [D ´ B] — — 1,50,000 7,08,000
F. Packing: [D ´ B] 3,90,000 84,000 1,35,000 6,09,000
 41

G. Actual Overheads Incurred (`) 42,000 42,000 15,000 99,000

(Under)/Over Recovery of OHs (`)
[E – F]