COST & MANAGEMENT ACCOUNTING PAST PAPERS

AUTUMN 2005 (Q 4)

Class Notes - Question No. 5

The factory overhead budget of a manufacturing company for the year ending June 30,
2006 is as follows:
Rupees
Indirect wages 1,627,920
Insurance – labour 114,240
Supervision cost 514,080
Machine maintenance wages 485,520
Supplies 257,040
Power 828,240
Tooling cost 285,600
Building insurance 14,280
Insurance of machinery 399,840
Depreciation – machinery 856,800
Rent and rates 371,280
5,754,840

At present, overheads are absorbed into the cost of the company’s products at 70% of
direct wages. The company is considering changing to a separate machine hour rate of
absorption for each of its four different machine groups. The following are some further
details of costs and machine groups:
Machine
groups
A B C D TOTAL
Tooling costs (Rs.) 115,958 88,042 55,832 25,768 285,600
Supervision (Rs.) 159,340 145,471 111,877 97,392 514,080
Supplies (Rs.) 118,634 79,089 19,772 39,545 257,040
Machine maintenance hours 3,000 2,000 4,000 1,000 10,000
Number of indirect workers 6 6 2 2 16
Total number of workers 26 34 15 10 85
Floor space (Sq.ft.) 3,000 2,400 1,600 1,000 8,000
Capital cost of machines 3,200 2,400 1,000 1,800 8,400
(Rs.’000)
Horse-power hours 55,000 27,000 8,000 15,000 105,000
Machine running hours 30,000 60,000 25,000 10,000 125,000

Required:
a) Calculate a machine hour rate for each group of machines
b) Calculate the overhead to be absorbed by product no. 123 involving:

Machine group Machine Hours

A 8
B 3
C 1
D 4

a) Calculate the overhead to be absorbed by each unit of product 123 if the labour cost is Rs.
1,200 and the present method of absorption is used. (15)

FOH expenses Base Total Machine A Machine B Machine C Machine D

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

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 Cost Basis Total (Rs.) A (Rs.) B (Rs.) C (Rs.) D (Rs.)
Indirect wages Indirect workers 1,627,920 610,470 610,470 203,490 203,490
Labour insurance Total workers 114,240 34,944 45,696 20,160 13,400
Supervision Given 514,080 159,340 145,471 111,877 97,392
Machine maintenance wages Maintenance hours 485,520 145,656 97,104 194,208 48,552
Supplies Given 257,040 118,634 79,809 19,772 39,545
Power Hours 828,240 433,840 212,976 63,104 118,320
Tooling cost Given 258,600 115,958 88,042 55,382 25,768
Building insurance Floor space 14,280 5,355 4,284 2,856 1,785
Insurance of machine Capital cost 399,840 152,320 114,420 47,600 85,680
Depreciation of machinery Capital cost 856,800 326,400 244,800 102,000 183,600
Rent Floor space 371,280 139,230 111,384 74,256 46,410
Total Budgeted overhead 5,754,840 2,242,147 1,753,556 895,155 863,982

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