Chapter 5

ACCOUNTING FOR OVERHEAD COST c) Overhead rate on the basis of prime cost
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑠 600000
= = = Rs 0.24
𝑃𝑟𝑖𝑚𝑒 𝑐𝑜𝑠𝑡 𝑅𝑠 25,00,000
d) Overhead rate on the basis of labour hour
NUMERICAL QUESTIONS 𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑
= 𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟 = =
𝑅𝑠 600000
= Rs 7.5
𝑅𝑠 80,000
BRIEF ANSWER QUESTIONS e) Overhead rate on the basis of machine hour
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑠 600000
= 𝑇𝑜𝑡𝑎𝑙 𝑚𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑜𝑢𝑟 = = Rs15
𝑅𝑠 40,000
BQ-1. You are given the following information regarding cost and the
operation of factory: BQ-3. Tektronix Company having two production departments A and B
provided the following information to you:
Direct labour hour worked.............. 6,000 hours
Machine hour operated ............................... 4,000 hours Items of Basis and Ratio of Total Production
Total overheads................................................Rs.3, 00,000 overheads Apportionment cost Department
Required: a. Overhead rate per direct labor hour b. Overhead rate per B A
machine hour Depreciation Machine hours (6,000:4,000) …
40,000 …
Solution: Rent and rates Area (3:2) 20,000
... …
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 3,00,000 Power expenses. Horse power (4:3) 35,000
… …
Overhead rate per labour hour = 𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟 = 6,000 = Rs 50
Labor welfare cost No. of workers (8:7) 18,000
… …
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 3,00,000
Overhead rate per machine hour = 𝑇𝑜𝑡𝑎𝑙 𝑚𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑜𝑢𝑟 = = Rs 75 General overheads Direct wages (9:7) 8,000 …
4,000 …
Total ….. …… ……
BQ-2. The following figures have been extracted from the books of a Required: a. Statement of apportionment of overheads b. Overhead rate
factory for a certain period: per machine hour
Direct material cost...................................... Rs.20, 00,000 Solution:
Direct labour cost ..........................................Rs.5, 00,000 Statement of Overhead Apportionment
Machine hours operated ................................40,000 hours
Direct labor hours worked .........................80,000 hours Items of Basis and Ratio of Total Production
Prime cost...................................................Rs.25, 00,000 overheads Apportionment Cost Department
Total overheads............................................ Rs.6, 00,000 A B
Required: Calculate overhead rate on the basis of: a. Direct material cost
b. Direct labor cost c. Prime cost d. Labor hours e. Machine hours Depreciation Machine hours (6,000:4,000) 40,000 24,000 16,000
Solution: Rent and rates Area (3:2) 20,000 12,000 8,000
a) Overhead rate on the basis of direct material cost = Power expenses. Horse power (4:3) 35,000 20,000 15,000
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑠 600000 Labor welfare cost No. of workers (8:7) 18,000 9,600 8,400
= 𝑅𝑠 20,00,000 = Rs 0.3 General overheads Direct wages (9:7) 8,000
𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑟𝑒𝑐𝑡 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑐𝑜𝑠𝑡 4,500 3,500
b) Overhead rate on the basis of direct labour cost = 121,000
Total 70,100 50,900
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑠 600000
= 𝑅𝑠 5,00,000 = Rs 1.2
𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 𝑐𝑜𝑠𝑡
 a. Overhead rate per Machine hour (As a whole) a. Overhead rate per labor hour
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐴𝑚𝑜𝑢𝑛𝑡 1,21,000 𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐴𝑚𝑜𝑢𝑛𝑡 186250
= 𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝐻𝑜𝑢𝑟𝑠 𝑂𝑝𝑒𝑟𝑎𝑡𝑒𝑑 = 10,000 = Rs. 12.10/MHr = = =Rs. 37.25/DLHr
𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑟𝑒𝑐𝑡 𝐿𝑎𝑏𝑜𝑢𝑟 𝐻𝑜𝑢𝑟𝑠 5000
a. Overhead rate per machine hour (For Department A)
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐴𝑚𝑜𝑢𝑛𝑡 70,100 b. Overhead rate per machine hour
= = = Rs. 11.68/MHr 𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐴𝑚𝑜𝑢𝑛𝑡 186250
𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝐻𝑜𝑢𝑟𝑠 𝑂𝑝𝑒𝑟𝑎𝑡𝑒𝑑 6000
= = =Rs. 62.08/MHr
b. Overhead rate per machine hour (For Department B) 𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝐻𝑜𝑢𝑟𝑠 𝑂𝑝𝑒𝑟𝑎𝑡𝑒𝑑 3000
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐴𝑚𝑜𝑢𝑛𝑡 50,900
= 𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝐻𝑜𝑢𝑟𝑠 𝑂𝑝𝑒𝑟𝑎𝑡𝑒𝑑 = 4000 = Rs. 12.725/MHr
SQ-2. The following figures have been extracted from the books of a
factory for a certain period:
Short Answer Questions Direct material cost Rs.20,00,000
SQ-1. You are given the following information regarding cost and the Direct labour cost Rs.5,00,000
operation of factory: Machine hours operated 40,000 hours
Direct labour hour worked 5,000 hours Direct labor hours worked 80,000 hours
Machine hour operated 3,000 hours Rent and rates Rs. 1,60,000
Information regarding overhead cost is: Indirect wages and supervision cost Rs. 1,20,000
Rent, rates and insurance Rs.50, 000 Indirect materials and consumable store Rs.80,000
Indirect wages and supervision cost Rs.80, 000 Lighting and heating Rs.40,000
Consumable store Rs.20, 000
Lighting and heating Rs. 10,000 Required: Calculate overhead rate on the basis of:
Hourly repairs and maintenance cost of machine Rs.2.50 a. Direct material cost b. Direct labor cost c. Prime cost d. Labor
Hourly depreciation charge on machine Rs.1.25 hours e. Machine hours
Power consumption 10 units per hour @ Rs.0.5 per unit
Solution:
Required: a. Overhead rate per direct labor hour b. Overhead rate per
Direct material cost Rs 20,00,000
machine hour
Add: Direct wages (Direct labour cost) Rs 5,00,000
Solution:
Prime cost Rs 25,00,000
Calculation of total overheads for a year Add: Overhead
Statement of Overhead Cost Rent & rates Rs 1,60,000
Particulars Amount Indirect wages & supervision cost Rs 1,20,000
Rent, rates and insurance 50,000 Indirect materials & consumable store Rs 80,000
Indirect wages and supervision cost 80,000 Lighting & heating Rs 40,000 Rs 4,00,000
Consumable stores 20,000 Total cost Rs 29,00,000
Lighting and heating 10,000 Direct labour hour worked 80,000 hours
Repair and maintenance cost of machine (2.50 × 3,000) 7,500 Machine hour operated 40,000 hours
Depreciation on machine (1. 25 x 3,000) 3,750
Power consumption (10 x 0.5 x 3,000) 15,000 a) Overhead rate on the basis of direct material cost =
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑠 4,00,000
Total overheads 1,86,250 = = 0.2
𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑟𝑒𝑐𝑡 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑐𝑜𝑠𝑡 𝑅𝑠 20,00,000
b) Overhead rate on the basis of direct labour cost
 𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 Direct labour cost = Rs 8,000
= =
𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 𝑐𝑜𝑠𝑡 Prime cost Rs 25,000
c) Overhead rate on the basis of prime cost Add: Overhead Rs
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 Total Cost Rs
= =
𝑃𝑟𝑖𝑚𝑒 𝑐𝑜𝑠𝑡
d) Overhead rate on the basis of labour hour Machine hour = 6,000 hours
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 Labor hour = 900 hours
= = Calculation of total overhead for the job
𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟
e) Overhead rate on the basis of machine hour a) Overhead rate on the basis of direct material cost
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑠 75000
= = = = = Rs1.25
𝑇𝑜𝑡𝑎𝑙 𝑚𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑜𝑢𝑟 𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑟𝑒𝑐𝑡 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑐𝑜𝑠𝑡 𝑅𝑠 60,000

SQ-3. The following information relates to the workers of a factory for a

Total overhead for the Job = Rs 17000 × Rs 1.25 = Rs
past period: 21,250
Raw material consumed Rs.60,000 b) Overhead rate on the basis of direct labour cost
Direct labor cost Rs.40,000 𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑠 75,000
Manufacturing overhead Rs.75,000 = = = Rs 1.875
𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑟𝑒𝑐𝑡 𝑙𝑎𝑏𝑜𝑢𝑟 𝑐𝑜𝑠𝑡 𝑅𝑠 40,000
Machine hours operated 25,000 hours Total overhead for the Job = Rs 8000 × Rs 1.875 = Rs
Labor hours worked 5,000 hours
On one job carried out in the workshops during the period the 15,000
following were the relevant data: c) Overhead rate on the basis of prime cost
Materials used Rs. 17,000 𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑠 75,000
Direct labor cost Rs.8, 000
= = = Rs 0.75
𝑃𝑟𝑖𝑚𝑒 𝑐𝑜𝑠𝑡 𝑅𝑠 1,00,000
Machine hours 6,000 Total overhead for the Job = Rs 25,000 × Rs 0.75 = Rs
Labor hours 900
Required: 18,750
a. Overheads for job on the basis of: d) Overhead rate on the basis of machine hour
i. Direct material cost ii. Direct wages iii. Prime cost iv. Machine 𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑠 75,000
= == = Rs 3
hour v. Labor hour 𝑇𝑜𝑡𝑎𝑙 𝑚𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑜𝑢𝑟 𝑅𝑠 25,000
b. Estimate the cost for the job on the basis of machine hour Total overhead for the Job = 6000hrs × Rs 3 = Rs 18,000
overhead rate. e) Overhead rate on the basis of labour hour
Solution: 𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑅𝑠 75000
Direct material cost = Rs 60,000 = = = Rs15
𝑇𝑜𝑡𝑎𝑙 𝑙𝑎𝑏𝑜𝑢𝑟 ℎ𝑜𝑢𝑟 𝑅𝑠 5,000
Direct labour cost = Rs 40,000 Total overhead for the Job = 900hrs × Rs 15 = Rs 13500
Prime cost = Rs 1, 00,000
Add: Overhead = Rs 75,000
Total cost = Rs 1, 75,000 b) Calculation of the total cost for the job by machine hour
Prime cost = Rs 25,000
Machine hour = 25,000 hours Add Overhead = Rs 18,000
Labour hour = 5,000 hours Total cost Rs 43,000
For the job
Direct Material cost = Rs 17,000
SQ-4. A Company provides you the following information for the month SQ-5. Nepal life Company has two production departments X and Y and
of Baisaskh 2066; one service department S, other information are:
Cost of machine. Rs. 1,50,000 Details Total Rs. Production Service
Transportation charge to bring the machine Rs.50,000 Departments dep.
Estimated scrap value Rs.20,000 X Y S1
Effective working life of the machine 40,000 hours Direct materials cost 1,00,000 50,000 30,000 20,000
Machine operated in the month of Baisakh 2066 was 800 hours Direct labor cost 60,000 30,000 20,000 10,000
Repairs and maintenance charge over the life of the machineRs. 1,00,000 Direct expenses 30,000 15,000 10,000 5,000
Rent and rates for the shop per year Rs.72,000 Area in square meter 7,000 4,000 2,000 1,000
General lighting for the shop per year Rs.48,000 Lighting points 60 30 20 10
Supervisor salary per month Rs.20,000 Assets value of plant. 2,00,000 1,00,000 60,000 40,000
Power consumed by the machine 5 units per hour @Rs.75 per 100 units Horse power 120 60 40 20
Machine occupies 1/4th of the total area of the shop and supervisor devotes No. of employees 200 100 60 40
l/5th of his time for the supervision of this machine.
Required: Calculate overhead rate per machine hour. Items of overheads Amount Rs.
Solution: Rent and rates 38,500
Estimated total life of the machine = 40,000 hours Depreciation.. 24,000
Machine operated for the month of Baishakh = 800 hours Welfare and canteen expenses 3,200
Power expenses 18,000
Calculation of total overhead for the month of Baishakh Electricity expenses 7,200
Particulars Amount
The production departments X and Y and one service department S1 other
1,50,000+50,000−20,000 3,600 relevant data are provided as under: The service department rendered
Depreciation = [ ] × 800 hrs
40000 ℎ𝑟𝑠 services to production departments X and Y in the ratio of 7: 3.
100,000
Repairs and maintenance = [ 40,000 ] × 800 hrs 2,000 Required: Statement of apportionment of overheads
1,500 Solution:
Rent and rates = (72,000/ 12) × ¼
General lighting = (48,000/ 12) × 1/4.
1,000 Statement of Apportionment of Overhead
4,000 Items of Basis & ratio of Total Production Service
Supervisor salary = 20,000 x 1/5th.
3,000 overhead Apportionment Rs. Dept.
Power = (5 unit x 800 hrs x Rs 0.75)
Total overheads 15,100 X Y S1
Direct materials cost Actual 20,000 - - 20,000
Direct labor cost Actual 10,000 - - 10,000
W/N Direct expenses Actual 5,000 - - 5,000
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑐𝑜𝑠𝑡+𝑇𝑟𝑎𝑛𝑠𝑝𝑜𝑟𝑡𝑎𝑡𝑖𝑜𝑛−𝑠𝑐𝑟𝑎𝑝 𝑣𝑎𝑙𝑢𝑒 Rent & rates Area (4:2:1) 38,500 22,000 11,000 5,000
Depreciation = Depreciation Assets value (5:3:2) 24,000 12,000 7,200 4,800
𝐿𝑖𝑓𝑒 𝑜𝑓 𝑚𝑎𝑐ℎ𝑖𝑛𝑒
Welfare & canteen No.of employees (5:3:2) 3200 1,600 960 640
On the basis of machine hour, Power expenses Horse power (3:2:1) 18,000 9000 6,000 3,000
Electricity expenses Lighting points (3:2:1) 7,200 3,600 2,400 1,200
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐴𝑚𝑜𝑢𝑛𝑡 Total 1,25,900 48,200 27,560 50,140
Overhead rate per machine hour =𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝐻𝑜𝑢𝑟𝑠 𝑂𝑝𝑒𝑟𝑎𝑡𝑒𝑑 Allocation of (7:3) ------ 35,098 15,042 (50,140)
service department
15100 Total Overhead 1,25,900 83,298 42,602 Nil
= =Rs. 18.875
800
SQ-6. A factory have two production department and other related details Overhead rate per Machine hour (As a whole)
for the last month are as follows: a.
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐴𝑚𝑜𝑢𝑛𝑡
= 𝑇𝑜𝑡𝑎𝑙 =
𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝐻𝑜𝑢𝑟𝑠 𝑂𝑝𝑒𝑟𝑎𝑡𝑒𝑑
Particulars Total Rs. Production
department b. Overhead rate per machine hour (For Department A)
A B 𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐴𝑚𝑜𝑢𝑛𝑡
= 𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝐻𝑜𝑢𝑟𝑠 𝑂𝑝𝑒𝑟𝑎𝑡𝑒𝑑 =
Indirect material cost in Rs. 30,000 20,000 10,000
Indirect labour cost in Rs. 15,000 10,000 5,000
Value of machinery used in Rs. 5,00,000 3,00,000 2,00,000 c. Overhead rate per machine hour (For Department B)
𝑇𝑜𝑡𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐴𝑚𝑜𝑢𝑛𝑡
Number of employees. 180 100 80 = 𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝐻𝑜𝑢𝑟𝑠 𝑂𝑝𝑒𝑟𝑎𝑡𝑒𝑑 =
Horse power of plant used. 100 60 40
Area occupancy (in sq. fit) 70 40 30 W/N HP × MH For A = 60 × 10,000 = 6,00,000
Operating machine hour per month 15,000 10,000 5,000
For B = 40 × 5,000 = 2,00,000
Depreciation on plant per annum – 24% 18%
Ratio = 3:1
The details of overheads cost for last month are as under:
Particular Amount Rs. SQ-7. Quantum Company with three Production departments P, Q and R
Power expenses 10,800 and one Service department A has presented the following information:
Insurance premium on machine 8,750 Particulars Amount RS.
Rent and rates 11,200 Rent and rates 21,600
Welfare expenses 6,750 Depreciation.. 22,100
Repair and maintenance (Based on machine hours) 1,950 Canteen expenses. 4,625
Indirect wages. 9000
Required: Overhead rate per machine hour for production department A
Indirect materials (Store and supplies/Consumable stores). 8,000
and B
Motive power 19,000
Solution:
Electricity charges 6,375
Statement of Overhead Apportionment
The following further details are available:
Items of overheads Basis and Ratio of Total Production Details Production departments Service
Apportionment Cost Department depart.
A B P Q R A
Indirect material cost Given Direct materials Rs. 60,000 50,000 30,000 20,000
Indirect labour cost Given Direct wages Rs. 40,000 30,000 20,000 10,000
Power expenses. HP × MH (3:2) Direct expenses Rs. 10,000 15,000 20,000 25,000
Insurance premium Value of machine (3:2) Area (sq. ft.) 9,000 4,500 3,000 1,500
Rent & rates Area (4:3) Light points 18 12 15 6
Welfare expenses No. of employees (5:4) Value of plant Rs. 1,20,000 80,000 40,000 20,000
Repair & maintenance Machine hour (2:1) Horse power 10 5 3 2
Depreciation Given (2% : 1.5%) per month No. of employees 75 50 40 20
Total The Service department rendered services to Production departments P, Q
and R in the ratio of 5:3:2.
Required: Statement showing the overhead distribution
Solution: Solution:
Statement of Apportionment of Overhead Statement of Apportionment of Overhead
Items of Basis & ratio of Total Production Servi Items of Basis & ratio of Total Production Service
overhead Apportionment Rs. Dept. ce overhead Apportionment Rs. Dept.
P Q R A P Q R A
Direct materials Actual 20,000 - - 20,000 Direct materials Actual 2,000 - - 2,000
Direct Wages Actual 10,000 - - 10,000 Direct Wages Actual 5,000 - - 5,000
Direct expenses Actual 25,000 - 25,000
- Direct expenses Actual 1,000 - - 1,000
Rent & rates Area (6:3:2:1) 21,600
Depreciation Value of plant (6:4:2:1) 22,100 Insurance Value of machine
Canteen expenses No. of employees (15:10:8:4) 4,625 Lighting expenses Area
Indirect wages Direct wages (4:3:2:1) 9,000 Rent Area
Indirect material Direct material (6:5:3:2) 8,000 Depreciation 25% of cost
Motive power Horse power (10:5:3:2) 19,000
Electricity charges Lighting point (6:4:5:2) 6375 Power expenses HP × MH
Total Store overhead Direct material
Allocation of (5:3:2) Total
service Allocation of service (45:35:20)
department department
Total Overhead Nil Total Overhead Nil

SQ-8. The details of a Production company for the year ending is given as
below:
Particulars Production Service COMPREHENSIVE ANSWER QUESTIONS
A B C X
Direct material cost Rs. 5,000 4,000 3,000 2,000 CQ-1. From the following information, compute a machine hour rate for
Direct wages Rs.. 2,000 3,000 4,000 5,000 the month of Baishakh, 2063:
Direct expenses Rs. 1,800 1,500 1,200 1,000 Cost of machine.................. Rs.2,65,000
Area (in sq. m)... 500 300 200 100 Transportation cost ............. Rs.35,000
Value of machine. 40,000 30,000 20,000 10,000 Estimated scrap value .............. Rs.50,000
HP of machine 30 20 10 5 Effective working life of the machine ............. 40,000 hours
Machine hours 6,000 4,000 2,000 1,000 Machine operation during the month was ............. 500 hours
List of overheads are as follows: Repairs and maintenance change over the life of the machine........
Insurance Rs. 15,000 Rs.20,000
Lighting expenses Rs. 2,200 Rent and rates of the department per year......... Rs.30,000
Rent Rs. 8,800 General lighting of the department per year ............ Rs. 15,000
Depreciation 25% of cost of machine Salary of supervision............... Rs.6,602
Power expenses Rs. 2,850 Power consumed by the machine 8 units per hour @ Rs.40 per 100 units
Store overheads Rs. 4,200 Machine occupies 3/4th of the total area of the department & supervisor
Service rendered by Service department to Production department A, B and C devotes 1/4th of his time for this machine
percentages of 45%, 35%, and 20%, respectively.
Required: a. Total overheads of Production department A, B and C b.
Machine hour overheads rate of each Production department
Solution: Solution:
Estimated life of machine = 40,000 hours Calculation of total overhead for a year:
Machine operated in the month of baishakh = 500 hours Particulars Amount
Depreciation (5,00000 +100000-80000) ÷ 16 32,500
Calculation of total overhead for the month of Baishakh Rent & rates (8500 × 12) × ¼ 25,500
General lighting (2800 × 12) × ¼ 8,400
Particulars Amount Insurance premium 18,000
Depreciation 3,125 Supervisory salary (9500 × 12) × 1/5 22,800
Repair & maintenance (Rs 20,000 ÷ 40,000) × 500 250 30 11,800
Power (100 × 12) × 3300 hrs
Rent & rates (30,000 ÷ 12) ×¾ 1,875
Total overhead 1,19,080
General lighting (15000 ÷ 12) × ¾ 937.5
W/N, Power 100 units-----Rs 30
Salary of supervisor (6,602 × ¼) 1,650.5 30
40 1600 1 unit------------100
Power (8 × 100 × 500)
30
Total overhead 9,438 12 units--------100 ×12 =Rs 3.6
𝑇𝑜𝑡𝑎𝑙 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 1,19,080
Overhead rate/ machine hour Rs 39.6933
W/N 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑜𝑢𝑟 𝑤𝑜𝑟𝑘𝑒𝑑 3000
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡+𝑇𝑟𝑎𝑛𝑠𝑝𝑜𝑟𝑡𝑎𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡−𝑆𝑐𝑟𝑎𝑝
Depreciation = CQ-3. An Industrial Company has three production department X, Y & Z
𝐿𝑖𝑓𝑒 𝑜𝑓 𝑚𝑎𝑐ℎ𝑖𝑛𝑒
2,65,000+35,000−50,000
= = Rs 3,125 and two service department A & B. The other information as follows:
40,000 ℎ𝑟𝑠 ×500 ℎ𝑟𝑠 Service
𝑇𝑜𝑡𝑎𝑙 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 9,438 Particulars Production Department
Overhead rate per machine hour = = Rs 18.876/MHr Departments
𝑚𝑎𝑐ℎ𝑖𝑛𝑒 ℎ𝑜𝑢𝑟 500
X Y Z A B
Cost of machine Rs. 12,00,000 24,00,000 36,00,000 4,80,000 6,00,000
CQ-2. Jhapa Manufacturing Company provides the following information: Prime cost Rs. 5,00,000 7,00,000 4,00,000 2,00,000 50,000
Cost of machine Rs.5,00,000 Indirect wages Rs. 40,000 60,000 70,000 20,000 10,000
Installation charge Rs, 1,00,000 Indirect materials Rs. 35,000 45,000 15,000 20,000 17,000
Machine capacity (in kilo watts). 10 8 7 5 3
Scrap value Rs.80,000 Machine hours 7,000 4,000 5,000 3,000 6,000
Rent and rates total area, for the shop per month Rs.8,500 Space occupied (in square ft.) No. 3,500 4,000 2,000 1,500 1,000
Life of the machine 16 years of labour 120 150 60 20 24
No. of light point. 38 48 20 12 4
General lighting total area for the shop per month Rs.2,800 Sales revenue Rs. 50 Lakh 60 Lakh 40 Lakh – –
Insurance premium per annum Rs. 18,000 The other information relating to production department and service department
Supervisor's salary per month Rs.9,500 as follows:
Power consumption 12 units per hour Rs.30 per 100 Power and fuel................................................Rs. 34,000
units Rent expenses................................................Rs. 30,000
Estimated working hours per annum 3,300 hours (which includes Heat and light..................................................Rs. 30500
setting up time of 300 hours are regarded as productive time). The Supervision.....................................................Rs. 46,750
machine occupies 1/4 of the total area of the shop. Supervisor is Canteen expenses......................................... Rs. 1, 87,000
expected to devote l/5th of his time for supervising the machine Labour welfare................................................Rs. 19,448
Depreciation of building.................................. Rs. 42,000
Selling and distribution expenses...................Rs. 1, 50,000
Required: Machine hour rate Depreciation is 10% p.a. & repair is 50% of depreciation. Reapportionment of
service in the ratio of (5:3:1)
Required: Machine hour rate of production department
Solution:
Statement of Apportionment of Overhead The expenses for the period were:
Power ............................................................... .Rs. 1,100
Items of overhead Basis & ratio of Total Production Service
Apportionment Rs. Dept. Dept. Depreciation..................................................... Rs. 30,000
X Y Z A B Lighting ..................................................................... 200
Prime cost Given Repairs .................................................................... 6,000
Indirect Wages Given Stores overhead ......................................................... 800
Indirect material Given General overheads ................................................. 12,000
Power & fuel KW × MH Welfare of staff .........................................................3,000
Rent & rates Space occupied Rent and taxes .......................................................... ..550
Heat & light No. of light point Apportion the overhead of Service Department Y according to direct wages
Plant supervision No. of labour and those of Service Department X in the ratio of 5:3:2 to the Production
Canteen expenses No. of labour Departments.
Labour welfare No. of labour
Depreciation building Space occupied
Selling & distribution exp Sales revenue
Solution:
Depreciation 10% of cost 10% of cost Overhead Distribution Summary
Repair 50% of dep. 50% of depreciation Overhead Cost Basis and ratios of Total Production Department Service
Total Heading overhead apportioned Amount Department
Allocation of service A (5:3:1) A B C X Y
department B (5:3:1) Direct material Given 45,000 --- --- --- 15,000 30,000
Direct labour ” 45,000 --- --- --- 22,500 22,500
Total Overhead Ni Power Electricity KWH 1,100 400 300 200 100 100
l (4:3:2:1:1)
Lighting Exp. Light points(5:8:2:3:2) 200 50 80 30 30 20
Store overhead Direct materials 800 100 200 200 150 150
(10:20:20:15:15)
Welfare to staff No of staffs 3,000 600 900 900 300 300
CQ-4. The following particulars have been extracted from BhajuRatna (10:15:15:5:5)
Engineering Concern for the quarter ended 31st December 2009. Compute
Depreciation Assets value(6:4:3:1:1) 30,000 12,000 8,000 6,000 2,000 2,000
the departmental overhead rate for each of the production departments, Repairs Assets value(6:4:3:1:1) 6000 2,400 1,600 1,200 400 400
assuming that overheads are recovered as a percentage of direct wages.
General O/H Direct wages 12,000 2,000 3,000 4,000 1,000 2,000
Rent and taxes Area(3:5:1:1:1) 550 150 250 50 50 50
Particulars Production Department Service Total 1,43,650 17,700 14,330 12,570 41,530 57,520
Apportionment X Given (5:3;2) ......... 20,765 12,459 8,306 (41,530 -------
Departments of service dept Y Direct wages (2;3;4) .......... 12,782 19,173 24,464 ) (57,520
A B C X Y ------- )
Direct wages Rs. 30,000 Rs. 45,000 Rs. 60,000 Rs. 15,000 Rs. 30,000 Total 1,43,650 51,247 45,962 46,440 Nil NIL
Direct material. Rs. 15,000 Rs. 30,000 Rs. 30,000 Rs. 22,500 Rs. 22,50
Staff number 1,500 2,250 2,250 750 750
Electricity KWH 6,000 4,500 3,000 1,500 1,500
Asset value Rs. 60,000 Rs. 40,000 Rs. 30,000 Rs. 10,000 Rs. 10,000
Light points. 10 16 4 6 4
Area sq. yards 150 250 50 50 50
All the Best