KUMAR ACADEMY

No.315, 6th Main Road, HAL 2nd Stage,

Indiranagar, Bangalore - 560 038.
Mob : 98800 69551 / 99803 29574
Landline : 4163 8785 / 4125 4765
[email protected]
www.kumaracademybangalore.com

CA-IPCC
GROUP-1
COST ACCOUNTING
CHAPTER-12
OVERHEADS
P1 - Indicate the base or bases that you would recommend to apportion the following costs to production
departments :
a. Rent, Rates, Taxes, Insurance, Depreciation and Repairs of Buildings.
b. Insurance, Depreciation and Repairs of Plant and Machinery.
c. Power.
d. Lighting.
e. Heating.
f. Canteen, Medical and Time Keeping Expenses.
g. Employer's Insurance Liability.
h. Insurance of Stock.
i. Store Keeping Expenses.
j. Internal Transport.
k. Indirect Labour.

P2 - A factory has three production departments P1, P2 and P3 and two service departments M and S.
The costs applicable to the departments after primary distribution are :
P1 12,000
P2 19,500
P3 26,000
MAINTENANCE (M) 6,800
STORES (S) 2,700
Data for apportionment of service department overheads are :
M S P1 P2 P3
Capital Values (Rs.) 15,000 10,000 55,000 76,000 64,000
Proportion - 5% 25% 38% 32%
No. of Requisitions 900 - 2,400 1,620 1,080
Proportion 15% - 40% 27% 18%
Prepare a statement of overhead distribution by step ladder method.

P3 - Using repeated distribution method, solve the problem given below :

a. Service Department A - Expenses to be allocated in the ratio of 30:30:20:20 to Production
Departments X,Y and Z and Service Department B.
b. Service Department B - Expenses to be allocated in the ratio of 50:20:20:10 to Production
Departments X,Y and Z and Service Department A.
c. Expenses incurred :
Production Dept X 50,000
Production Dept Y 20,000
Production Dept Z 25,000
Service Dept A 5,000
Service Dept B 8,000

P4 - A company with three production departments and two service depts has the following balances on a
departmental distribution summary of expenses :
Production Dept X 24,000
Production Dept Y 21,000
Production Dept Z 18,000
Service Dept A 3,000
Service Dept B 5,000
The expenses of the Service Departments are charged out on the following basis :
SERVICE PRODUCTION SERVICE
DEPT X Y Z A B
A 40% 25% 15% - 20%
B 35% 30% 20% 15% -
You are required to show the apportionment of overheads by using the simultaneous equations method.

Page 1
P5 - Calculate Machine Hour Rate for Machine A :
Cost of machine 16,000
Estimated scrap value 1,000
Effective working life 10,000 hours
Running time per 4 weekly period 160 hours
Average cost of repairs and
maintenance per 4 weekly period 120
Standing charges allocated to
Machine A per 4 weekly period 40
Power used by machine A, 4 units per hour at a cost of 5 paisa per unit.

P6 - Calculate the machine hour rate for the month of January to cover the overhead expenses given
below relating to a machine :
a.Rent of the department (1/5th area is occupied by the machine) 780 Per Annum
b. Lighting (out of 12 points, 2 are for this machine) 288 Per Annum
c. Insurance 36 Per Annum
d. Cotton waste, etc., 60 Per Annum
e. Foreman's salary (1/4th for this machine) 6,000 Per Annum
f. Cost of machine 9,200
g. Scrap 200
It is assumed that the machine will work for 1,800 hours per annum and that it will incur Rs.1,125 for
repairs and maintenance for life. It is further assumed that 5 units of power would be used per hour which
is available at 6 paisa per unit and that the life of the machine will be 10 years.

P7 - Compute a machine hour rate from the following particulars :

a. Cost of machine - Rs.10,000 ; estimated life - 10 years. Estimated scrap value - Rs.1,000 ; Estimated
working hours - 50 weeks of 44 hours per week of which maintenance is expected to take up 200 hours.
No other loss of working time is expected. The setting up time is estimated at 5% of the total productive
time. No power is necessary for maintenance and setting up.
b. The machine uses 10 units of power per unit at 10 paisa per unit.
c. The machine requires a chemical solution which is replaced at the end of each week at a cost of Rs.20.
d. The estimated cost of maintenance is Rs.1,200 per annum.
e. Two operators control the machine together with 5 other identical machines in the shop, each getting
wages of Rs.60 per week.
f. Insurance of the machine is 1% pa.
g. The rent of the machine shop is Rs.1,200 pa.
h. Departmental overhead apportioned to this machine amounts to Rs.1,250 per annum.
i. Repairs of the machine are estimated at 50% of depreciation.

P8 - From the following details you are required to compute a comprehensive machine hour rate :
The original purchase price of the machine (subject to a depreciation at 10% pa on the original cost)
Rs.43,200.
Normal working hours for the month - 200 hours (the machine works only at 75% capacity).
Wages to machinemen Rs.4 per day of 8 hours.
Wages for a helper (machine attendent) Rs.2 per day of 8 hours.
Power consumption (HT) estimated at Rs.150 pm for the time worked.
Supervision charges apportioned for the machine centre Rs. 300 per month.
Electricity and Lighting Rs.75 per month.
Repairs and Maintenance (machine) including consumable stores per month Rs.150.
Insurance of plant and buildings (apportioned) per annum Rs.1,000.
Other general expenses (Overheads) Rs.2,160 per annum.
Production bonus payable to workers in terms of an award 33 1/3% of the basic wages and dearness
allowance. Workers are paid a fixed DA of Rs.75 per month.
Add 10% of the basic wage and DA against leave wages and holidays with pay to arrive at a
comprehensive labour rate for debit to production.

Page 2
P9 - A machine costs Rs.90,000 and is deemed to have a scrap value of 5% at the end of its effective life
(19 yrs) 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 further 750 hours will be lost due to staggering. The other details
in respect of the machine shop are :
a. Wages, bonus and PF contribution of each of the two operators (each operator is in charge of two
machines) Rs.6,000 pa.
b. Rent of the shop Rs.3,000 pa.
c. General Lighting for the shop Rs.250 pm.
d. Insurance premium per machine Rs.200 per quarter.
e. Cost of repairs and maintenance per machine Rs.250 pm.
f. Shop supervisor's salary Rs.500 pm.
g. Power consumption of the machine per hour 20 units at Rs.10 per 100 units.
h. Other factory overhead chargeable to the shop Rs.4,000 pa.
There are four identical machines in the shop. The supervisor is expected to devote 1/5th of this time for
supervising the machine. Calculate a comprehensive machine hour rate from the above.

P10 - A engineering company gives you the following details about a new machine installed by them.
Calculate the machine hour rate for the machine :
FOB Cost of the machine 2,400,000
Customs duty, insurance, freight 1,100,000
Installation expenses 300,000
Cost of tools for first two years 400,000
Cost of machine room 300,000
Rate of interest on term loan to finance the above capital expenditure 12% p.a.
Cost of A/C machine room 200,000
Salaries of operators 2,00,000 per year
Cost of electricity Rs.11 per hour
Consumption of stores 5,000 per month
Other expenses 5,00,000 p.a.
Rate of depreciation 10% pa on fixed assets
Total working hours of the machine 200 hours per month
Loading and unloading time 10% of machine time
You make necessary assumptions which are to be stated clearly.

P11 - X Ltd having 25 different types of automatic machines, furnishes to you the following data for
1990-91 in respect of machine B :
Cost of the machine 50,000
Life is 10 years Scrap Value Rs.Nil
Overhead expenses are :
Factory Rent Rs. 50,000 p.a.
Heating and Lighting Rs. 40,000 p.a.
Supervision Rs. 150,000 p.a.
Reserve equipment for machine B Rs. 5,000 p.a.
Area of factory 80,000 Sq.Ft.
Area occupied by machine B 3,000 Sq.Ft.
Power cost 50 paisa per hour while in operation
Wages of operator is Rs.24 per day of 8 hours including all fringe benefits. He attends to one machine
when it is under set up and two machines while under operation.
Estimated Production hours 3,600 pa.
Estimated set up time 400 hours pa.
Prepare a schedule of comprehensive machine hour rate and find the cost of the following jobs :
JOB 112 JOB 118
Set up time in hours 80 40
Operation time in hours 130 160

Page 3
P12 - A company uses a historical cost system and absorbs overheads on the basis of a predetermined
rate. The following data are available for the year ended 31.3.1997 :
Manufacturing overheads Amount actually spent 170,000
Amout absorbed 150,000
Cost of goods sold 336,000
Stock of finished goods 96,000
Work in progress 48,000
Using two methods of disposal of under-absorbed oberheads, show the implication on the profits of the
company under each method.

P13 - In a manufacturing unit, overhead was recovered at a pre-determined rate of Rs.20 per labour hour.
The total factory overhead incurred and labour hours actually worked were Rs.45 lakhs and 2 lakh labour
hours respectively. During this period, 30,000 units were sold. At the end of the period, 5,000 units were
held in stock while there was no opening stock of finished goods. Similarly, though there was no stock of
uncompleted units at the beginning of the period, at the end of the period there were 10,000 completed
units which may be reckoned at 50% complete.
On analysis of reasons, it was found that 60% of the unabsorbed overheads were due to defective planning
and the rest was attributable to increase in overhead costs.
How would unabsorbed overheads be treated in cost accounts ?

MAY 1987 - 20 MARKS

P14 - Gemini Enterprises undertakes three different jobs A, B and C. All of them require the use of a special
machine and also the use of a computer. The computer is hired and the hire charges work out to Rs.4,20,000
per annum. The expenses regarding the machine are estimated as follows :-
Rent for the quarter Rs.17,500
Deprecation per annum Rs.2,00,000
Indirect charges per annum Rs.1,50,000
During the first month of operations, the following details were taken from the job register :-
Job A B C
Number of hours the machine was used :-
(a) Without the use of the computer 600 900 -
(b) With the use of the 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 individual jobs A, B and C.

P15 - A company is making a study of the relative profitability of the two products, A & B. In addition to
direct costs, indirect selling and distribution costs to be allocated between the two products are as under :
Insurance charges for inventory (finished) 78,000
Storage costs 140,000
Packing and forwarding charges 720,000
Salesmen salaries 850,000
Invoicing costs 450,000
Other details are : Product A Product B
Selling price per unit 500 1,000
Cost per unit (exclusive of indirect
selling & distribution costs) 300 600
Annual sales in units 10,000 8,000
Average inventory 1,000 800
Number of invoices 2,500 2,000
One unit of product A requires a storage space twice as much as product B. The cost to pack and forward
one unit is the same for both products. Salesmen are paid salary plus commission @ 5% on sales and
equal amount of efforts are put forth on the sales of each of the products.
Required : (a) Set up a schedule showing the apportionment of the indirect selling and distribution costs
between the two products ; (b) Prepare a statement showing the relative profitability of the two products.

Page 4
NOV 1984 - 20 MARKS
P16 - Modern Ltd have three production departments P1, P2 and P3 and two service departments S1 and S2,
the details pertaining to which are as under :-
P1 P2 P3 S1 S2
Direct Wages (Rs.) 3,000 2,000 3,000 1,500 195
Working Hours 3,070 4,475 2,419 - -
Value of Machines (Rs.) 60,000 80,000 100,000 5,000 5,000
HP of Machines 60 30 50 10 -
Light Points 10 15 20 10 5
Floor Space (Sq. Feet) 2,000 2,500 3,000 2,000 500
The following figures extracted from the accounting records are relevant :-
Rent and Rates Rs. 5,000
General Lighting 600
Indirect Wages 1,939
Power 1,500
Depreciation on Machines 10,000
Sundries 9,695
The expenses of the Service Departments are allocated as under :-
P1 P2 P3 S1 S2
S1 20% 30% 40% - 10%
S2 40% 20% 30% 10% -
Find out the total cost of Product X which is processed for manufacture in Department P1, P2 and P3 for
4, 5 and 3 hours respectively, given that its direct material cost is Rs.50 and direct labour cost is Rs.30.

MAY 2005 - 5 MARKS

P17 - A manufacturing unit has purchased and installed a new machine of Rs.12,70,000 to its fleet of 7
existing machines. The new machine has an estimated life of 12 years and is expected to realise Rs.70,000
as scrap at the end of its working life. Other relevant data are as follows :-
a. Budgeted working hours are 2,592 based on 8 hours per day for 324 days. This includes 300 hours for
plant maintenance and 92 hours for setting up of plant.
b. Estimated cost of maintenance of the machine is Rs.25,000 pa
c. The machine requires a special chemical solution which is replaced at the end of each week (6 days in a
week) at a cost of Rs.400 each time.
d. Four operators control operation of 8 machines and the average wage per person amounts to Rs.420
per week plus 15% fringe benefits.
e. Electricity used by the machine during the production is 16 units per hour at a cost of Rs.3 per unit.
No current is taken during maintenance and setting up.
f. Departmental and general works overhead allocated to the operation during last year was Rs.50,000.
During the current year, it is estimated to increase 10% of this amount.
Calculate machine hour rate if (a) setting up time is unproductive ; (b) setting up time is productive.

MAY 2003 - 8 MARKS

P18 - PQR Ltd has its own power plant, which has two users, Cutting Dept and Welding Dept. When the
plans were prepared for the power plant, top management decided that its practical capacity should be
1,50,000 machine hours. Annual budgeted practical capacity fixed costs are Rs.9,00,000 and budgeted
variable costs are Rs.4 per machine hour. The following data are available :-
Cutting Dpt Welding Dpt Total
Actual usage in 2002-2003 (machine hours) 60,000 40,000 100,000
Practical capacity for each dept (machine hours) 90,000 60,000 150,000
Required :-
a. Allocate the power plant's cost to the cutting and welding departments using a single rate method in which
the budgeted rate is calculated using practical capacity and costs are allocated based on actual usage.
b. Allocate the power plant's cost to the cutting and welding departments, using a dual rate method in which
fixed costs are allocated based on practical capacity and variable costs are allocated based on actual usage.
c. Allocate the power plant's cost to the cutting and welding departments using the dual rate method in which
the fixed cost rate is calculated using practical capacity, but fixed costs are allocated to the cutting and
welding department based on actual usage. Variable costs are allocated based on actual usage.
d. Comment on your results in requirements (a) (b) and (c).

Page 5
NOV 2005 - 14 MARKS
P19 - From the details furnished below, you are required to compute a comprehensive machine-hour rate :-
Original purchase price of the machine (subject to depreciation @ 10% pa on original cost) Rs.3,24,000
Normal working hours for the month (the machine works to only 75% of capacity) 200 hours
Wages of machinemen Rs.125 per day (of 8 hours)
Wages of helper (machine attendant) Rs.75 per day (of 8 hours)
Power cost for the month for the time worked Rs.15,000
Supervision charges apportioned for the machine centre for the month Rs.3,000
Electricity & Lighting for the month Rs.7,500
Repairs & Maintenance (machine) including consumable stores per month Rs.17,500
Insurance of plant and building (apportioned) for the year Rs.16,250
Other general expenses per annum Rs.27,500
The workers are paid a fixed DA of Rs.1,575 pm. Production bonus payable to workers in terms of an award
is equal to 33.33% of basic wages and DA. Add 10% of the basic wage and DA against leave wages and
holidays with pay to arrive at a comprehensive labour-wage rate for debit to production.

MAY 2007 - 15 MARKS

P20 - A company has three production departments (M1, M2 and A1) and three service departments, one of
which Engineering Service Department, servicing the M1 and M2 only. The relevant information are as follows :-
Product X Product Y
M1 10 Machine Hours 6 Machine Hours
M2 4 Machine Hours 14 Machine Hours
A1 14 Direct Labour Hours 18 Direct Labour Hours
The annual budgeted overhead cost for the year are :-
Indirect Wages Consumable Supplies
Rs. Rs.
M1 46,520 12,600
M2 41,340 18,200
A1 16,220 4,200
Stores 8,200 2,800
Engineering Services 5,340 4,200
General Services 7,520 3,200
Rs.
- Depreciation on P&M 39,600
- Insurance of P&M 7,200
- Insurance of Building 3,240 (total building insurance cost forM1 is one third of annual premium)
- Power 6,480
- Light 5,400
- Rent 12,675 (the general service department is located in a building owned by the
company. It is valued at Rs.6,000 and is charged into cost at a
notional value of 8% pa. This cost is additional to the rent shown
above)
- The value of issues of materials to the production departments are in the same proportion as shown above for the
consumable supplies.
The following data is also available :-
Book value Area Effective Production Capacity
of P&M (Sq Ft) HP Hrs (%) Direct Labour Machine
(Rs.) Hour Hour
M1 120,000 5,000 50 200,000 40,000
M2 90,000 6,000 35 150,000 50,000
A1 30,000 8,000 5 300,000
Stores 12,000 2,000 -
Engineering Services 36,000 2,500 10
General Services 12,000 1,500 -

Required :- 1. Prepare a overhead analysis sheet, showing the bases of apportionment of overhead to departments
2. Allocate service department overheads to production departments ignoring the apportionment of
service department costs among service departments
3. Calculate suitable overhead absorption rate for the production departments.
4. Calculate the overheads to be absorbed by two products X and Y

Page 6
NOV 2007 - 85 MARKS
P21 - A machine shop cost centre contains three machines of equal capacities. Three operators are employed on each
machine, payable Rs.20 per hour each. The factory works for 48 hours in a week which includes 4 hours set up time. The
work is jointly done by operators. The operators are paid fully for the 48 hours. In addition, they are paid a bonus of 10% 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 allocated to the machines. The following details of factory overheads applicable to the cost centre
are available :-
- Depreciation 10% pa on original cost of the machine. Original cost of each machine is Rs.52,000
- Maintenance and repairs per week per machine is Rs.60
- Consumable stores per week per machine is Rs.75
- Power : 20 units per hour per machine at the rate of 80 paise per unit
- Apportionment to cost centre : Rent per annum Rs.5,400 ; Heat and Light pa Rs.9,720 ; Foreman's salary pa Rs.12,960.
Required :- 1. Calculate the cost of running one machine for a four week period
2. Calculate machine hour rate

Page 7
P1
Overhead Base for allocation of overhead to depts
a. Rent, Rates, Taxes, Insurance Floor Space occupied in the building
Depreciation & Repairs of Bldg

b. Insurance, depreciation and Value of P&M in each dept

repairs of P&M

c. Power HP of Machines in each dept

d. Lighting No of Light Points in each dept

e. Heating Floor Space occupied in the building

f. Canteen, medical and time No of employees in each dept

keeping expenses

g. Employer's insurance liability Direct wages in each dept

No of employees in each dept

h. Insurance of stock Value of stock in each dept

i. Stores keeping expenses No of requisitions from each dept

j. Internal transport No of requisitions from each dept

to use the transport

k. Indirect labour Direct wages in each dept

P2
Overhead Distribution Statement by Step Ladder Method
BOA Total P1 P2 P3 M S
OH after primary dist 67,000 12,000 19,500 26,000 6,800 2,700

Apportionment of
Dept M's Costs Capital Values - 1,700 2,584 2,176 (6,800) 340

Apportionment of
Dept S's Costs No of Requisitios - 1,431 966 643 - (3,040)

67,000 15,131 23,050 28,819 - -

Page 1
P3
Overhead Distribution Statement by Repeated Distribution Method
BOA Total X Y Z A B
OH after primary dist 108,000 50,000 20,000 25,000 5,000 8,000

Apportionment of
Dept A's Costs 30:30:20:20 - 1,500 1,500 1,000 (5,000) 1,000

Apportionment of
Dept B's Costs 50:20:20:10 - 4,500 1,800 1,800 900 (9,000)

Apportionment of
Dept A's Costs 30:30:20:20 - 270 270 180 (900) 180

Apportionment of
Dept B's Costs 50:20:20:10 - 90 36 36 18 (180)

Apportionment of
Dept A's Costs 30:30:20:20 - 5 5 4 (18) 4

Apportionment of
Dept B's Costs 50:20:20:10 - 2 1 1 0 (4)

108,000 56,367 23,612 28,020 - -

P4 Let Overheads of Service Dept A = a

Let Overheads of Service Dept B = b

a = 3,000 + 15% of b & b = 5,000 + 20% of a

Solving for a & b, a= 3,866

b= 5,773

Overhead Distribution Statement

BOA Total X Y Z A B
OH after primary dist 71,000 24,000 21,000 18,000 3,000 5,000

Apportionment of
Dept A's Costs 40:25:15:20 - 1,546 967 580 (3,866) 773

Apportionment of
Dept B's Costs 35:30:20:15 - 2,021 1,732 1,155 866 (5,773)

71,000 27,567 23,698 19,735 - -

P5 Cost/Hr.
Depreciation 1.50
R&M 0.75
Standing Charges 0.25
Power 0.20
2.70

Page 2
P6 pa Cost/Hr.
Rent 156
Lighting 48
Insurance 36
Cotton Waste, etc., 60
Foreman's Salary 1,500
Depreciation 900
R&M 112.50
2,812.50 1.5625
Power 0.3000
1.8625

P7 Estimated Working Hours 2,200

Less : Mnt time 200
Productive time 2,000
Less : Setup time 100
Effective Productive time 1,900 pa

pa Cost/Hr.
Depreciation 900
Power 1,900
Chemical Solution 1,000
Maintenance 1,200
Operators Wages 1,000
Insurance 100
Rent of shop 200
Dept overheads 1,250
Repairs 450
8,000 4.21

P8 Normal working hours 200

Less : Normal Loss 50
Productive time 150 pm

pm Cost/Hr.
Depreciation 360
Machineman Wages 100
Helper Wages 50
Power 150
Supervision 300
Electricity & Lighting 75
R&M + Consumables 150
Insurance 83.33
General Expenses 180
DA to workers 150
Production bonus 100
Leave wages & paid
holidays 30
1,728 11.52

Page 3
P9 Estimated Working Hours 2,400
Less : Normal Repairs 150
Productive time 2,250
Less : Staggering 750
Effective Productive time 1,500 pa

pa Cost/Hr.
Depreciation 4,500
Operator's Wages 3,000
Rent 750
Lighting 750
Insurance 800
R&M 3,000
Supervisor's pay 1,200
Power 4,500 (assumed for 2,250 hours)
Other overheads 1,000
19,500 13.00

P10 Normal working hours 2,400

Less : Loading/Unloading time 240
Productive time 2,160 pa

pa Cost/Hr.
Depreciation 430,000
Tools amortization 200,000
Salaries of operators 200,000
Electricity 23,760 (assumed for 2,160 hours)
Stores 60,000
Other expenses 500,000
1,413,760 654.52

Page 4
P11 Allocation of fixed overheads to Machine B Cost pa
Overhead Basis of Allocation (Rs.)
Depreciation Actuals 5,000
Factory Rent Area occupied 1,875
Heating & Lighting Area occupied 1,500
Supervision No of Machines 6,000
Reserve Equipment Actuals 5,000
19,375

Calculation of Machine Hour Rate for Machine B when the Machine is

Under In
Set up Operation
Rs. Rs.
Fixed Costs 4.84 4.84
Power - 0.50
Wages 3.00 1.50
7.84 6.84

Cost of Jobs 112 118

Rs. Rs.
Set-up Cost 627 314
Operative Cost 889 1,094
1,516 1,408

P12 Overheads incurred 170,000

Overheads absorbed 150,000
Under absorption 20,000

1st Method :-
Write off Rs.20,000 to Costing P&L A/c. Profits will reduce by Rs.20,000

2nd Method :-
Allocate Rs.20,000 to items of output as under :-
Rs. U/A OH
COGS 336,000 14,000 (Debited to COGS / CP&L)
FG 96,000 4,000 (Increase value of FG)
WIP 48,000 2,000 (Increase value of WIP)
480,000 20,000
Profits will reduce by Rs.8,000

Page 5
P13 Overheads incurred 4,500,000
Overheads absorbed 4,000,000
Under absorption 500,000

60% of under absorbed overheads = Rs.3,00,000 attributable to defective

planning should be transferred to Costing P&L Account.

For the balance of under absorbed overheads of Rs.2,00,000 :-

1st Method :-
Write off Rs.2,00,000 to Costing P&L A/c.

2nd Method :-
Allocate Rs.2,00,000 to items of output as under :-
Units U/A OH
COGS 30,000 150,000 (Debited to COGS / CP&L)
FG 5,000 25,000 (Increase value of FG)
WIP 5,000 25,000 (Increase value of WIP)
40,000 200,000

P14 Machine Expenses pm Computer Expenses pm

Rent 5,833 Hire Charges 35,000
Depreciation 16,667
Indirect Charges 12,500
35,000 35,000
No of Machine Hrs 3,500 No of Computer Hrs 2,000
Machine Hour Rate 10 Computer Hour Rate 17.50

Machine Hour rate when Computer was used Rs.27.50

Machine Hour rate when Computer was not used Rs.10

Allocation of Overheads to Jobs A B C Total

Rs. Rs. Rs. Rs.
Without use of Computer 6,000 9,000 0 15,000
With use of Computer 11,000 16,500 27,500 55,000
17,000 25,500 27,500 70,000

P15 State of apportionment of Indirect Selling & Distribution Costs

Particulars BOA Total Product A Product B

Insurance for FG 30:48 78,000 30,000 48,000
Storage Costs 2000:800 140,000 100,000 40,000
Packing & Forwarding 10:8 720,000 400,000 320,000
Salesmen Salaries 1:1 850,000 425,000 425,000
Salesmen Commission 50:80 650,000 250,000 400,000
Invoicing Costs 25:20 450,000 250,000 200,000
2,888,000 1,455,000 1,433,000

Sales 13,000,000 5,000,000 8,000,000

COGS 7,800,000 3,000,000 4,800,000
Gross Profit 5,200,000 2,000,000 3,200,000
Indirect Selling & Dist OHs 2,888,000 1,455,000 1,433,000
Net Profit 2,312,000 545,000 1,767,000
Net Profit as a % of Sales 17.78% 10.90% 22.09%

Page 6
P16 Statement of Primary Distribution of Overheads
Overhead BOA Total P1 P2 P3 S1 S2
R&R Floor Space 5,000 1,000 1,250 1,500 1,000 250
GL Light Points 600 100 150 200 100 50
IDW Direct Wages 1,939 600 400 600 300 39
Power HP of Mchns 1,500 600 300 500 100 0
Dep Value of Mchns 10,000 2,400 3,200 4,000 200 200
Sundries Direct Wages 9,695 3,000 2,000 3,000 1,500 195
D.Wages Actuals 1,695 - - - 1,500 195
30,429 7,700 7,300 9,800 4,700 929

Statement of Secondary Distribution of Overheads by Step Ladder Method

BOA Total P1 P2 P3 S1 S2
OH after
Prmy Dist 30,429 7,700 7,300 9,800 4,700 929

S1 Dept 20:30:40:10 - 940 1,410 1,880 (4,700) 470

S2 Dept 40:20:30 - 622 311 466 0 (1,399)

30,429 9,262 9,021 12,146 - -

Working Hours 3,000 4,475 2,419
OH per Hour 3.0873 2.0158 5.0212

Total Cost of Product X Rs. Rs.

Material Cost 50.00
Labour Cost 30.00
Production Overheads :-
Dept P1 12.35
Dept P2 10.08
Dept P3 15.06 37.49
117.49

P17 Estimated Working Hours 2,592

Less : Maintenance 300
Productive time 2,292
Less : Setup 92
Effective Productive time 2,200 pa

pa Cost/Hr.
Depreciation 100,000
Maintenance 25,000
Chemical Solution 21,600
Operator's Wages 13,041
Power 105,600
Dept OH 6,875
272,116
If set up time is unproductive 123.69
If set up time is productive 118.72

Page 7
P18 a. When single rate method is used :-
FOH Rate per hour 6.00
VOH Rate per hour 4.00
OH Rate per hour 10.00

Cutting Welding Total

Dept Dept
Overheads absorbed 600,000 400,000 1,000,000
@ Rs.10 per hour
based on actual usage

b. When dual rates are used :-

Cutting Welding Total
Dept Dept
FOH absorbed @
Rs.6 per hour for
Practical Capacity 540,000 360,000 900,000

VOH absorbed @
Rs.4 per hour based
on actual usage 240,000 160,000 400,000

780,000 520,000 1,300,000

c. When dual rates are used :

Cutting Welding Total
Dept Dept
FOH absorbed @
Rs.6 per hour
on actual usage 360,000 240,000 600,000

VOH absorbed @
Rs.4 per hour based
on actual usage 240,000 160,000 400,000

600,000 400,000 1,000,000

Under dual rate method, under c and single rate method under a, the
allocation of fixed cost on practical capacity of plant over each department
is based on single rate. The advantage of this approach is that the user
departments are allocated fixed costs only for the capacity used. The
unused capacity cost of Rs.3,00,000 will not be allocated to the user depts.
This highlights the cost of unused capacity.
Under b, fixed cost are allocated to user depts on the basis of practical
capacity, so that all fixed costs are allocated and there is no unused capacity
identified with the power plant.

Page 8
P19 Normal working hours 200
Less : Normal Loss 50
Productive time 150 pm

pm Cost/Hr.
Depreciation 2,700
Machineman Wages 3,125
Helper Wages 1,875
Power 15,000
Supervision 3,000
Electricity & Lighting 7,500
R&M + Consumables 17,500
Insurance 1,354
General Expenses 2,292
DA to workers 3,150
Production bonus 2,717
Leave wages & paid
holidays 815
61,028 406.85

P20
Statement of Primary Dist of Overheads
Items BOA Total M1 M2 A1 Stores Eng Ser Gen Ser
Dep Value of P&M 39,600 15,840 11,880 3,960 1,584 4,752 1,584
Ins - P&M Value of P&M 7,200 2,880 2,160 720 288 864 288
1/3 to M1 -
Bal based on
Ins - Bld Area 3,240 1,080 648 864 216 270 162
Power HP Hours 6,480 3,240 2,268 324 0 648 0
Light Area 5,400 1,080 1,296 1,728 432 540 324
Rent Area 12,675 2,535 3,042 4,056 1,014 1,268 761
Rent 8% of 6,000 480 - - - - - 480
IDW Given 125,140 46,520 41,340 16,220 8,200 5,340 7,520
CS Given 45,200 12,600 18,200 4,200 2,800 4,200 3,200
245,415 85,775 80,834 32,072 14,534 17,882 14,319

Statement of Secondary Dist of Overheads

Dept BOA Total M1 M2 A1 Stores Eng Ser Gen Ser
OH after
Prm Dist 245,415 85,775 80,834 32,072 14,534 17,882 14,319

Stores 126:182:42 - 5,232 7,558 1,744 (14,534) - -

Eng Ser 4:5 - 7,948 9,934 - - (17,882) -

Gen Ser 20:15:30 - 4,406 3,304 6,609 - - (14,319)

245,415 103,361 101,630 40,424 - - -

Machine Hours 40,000 50,000
Labour Hours 300,000

Rate per MHR 2.584 2.033

Rate per LHR 0.135

Page 9
 Statement of Overhead Absorption for Products X & Y
Dept Absrpt Product X Product Y
Rate Hours Rs. Hours Rs.
M1 2.584 10 25.84 6 15.50
M2 2.033 4 8.13 14 28.46
A1 0.135 14 1.89 18 2.43
35.86 46.39

P21
Calculation of cost of running one machine for a 4 week period
Cost/pa Cost/4weeks
Fixed Costs / Standing Charges :
Depreciation 1,600
Heat & Light 997
Foreman's Salary 1,329
Rent 554
4,480

Machine Expenses :
Wages 4,192
Maintenance & Repairs 240
Consumables Stores 300
Power 2,816
7,548

Costs per machine for a 4 week perid 12,028

Productive Hours 176
Machine Hour Rate 68.34

Page 10