O4.

Over head
Cost
DeFinition

ndirect potOD OP lbe total

Cost Consti
utes he
verbe ad
coch S the oggre
qate of indirect
cOSt
indifect w aq os and
ma teria1
indirect en penses

Overboad CoS4 consis-t all

eapenditure ncured foY or
n conDec
ctoD cotb the
general organi2a tio n of the whole
OFthe
or par undertakinq

The eipen ses ahich do Dotdirectly arise frO m produt te

Or SerViCe but Supporting indirectly for the produciion
O servlco

0Todirect Material

02. Dndirect labor

Over head
CoSt 63.»direct eipenses

Steps in Overhead

Collecttgn of Over he ad
O

of v e r h ea d
o2 Allotement

0Verb ead
93 A pportionment

or ptidn oVQY head

A A bs inot
 ale

C ollection Of Overhead

*Collec tion Of overlhoad m eaos ccollect the a OnI

over head cos accordi ng to e apenses The Fol}o cot ng
SoutCe decament For different items of overheade
eXpenS
o. Stor oS euisi tion anote hich shows s Landing orde
o. Stores ana lysis bookS .
wages of SseeperS.
03 L nvoices or purc haSe NOUCh e
04 CaS h book
OS .
Subsidiarg records

o2. Allot ment oF Overhead Alocation

CoS+ allocatioD de fi oed as the all 9 te ment of s hole2
Lem S oF CoSt a centerS
or coSt uoi ts.
Eg CoSt o f
+e\ephone of a
partlcular +elephone
should be charged L0 tha* pa rticular de pt cihere
i the
telephone ls
|ocated
03 Appor Dment OF Overhead

The over heads hich Co Dot be

directly seporated to
COSt centers or coSt unitS. hen t must be
distri buted
tproduct centere and service centers
accordi ng to
reoSo0able esttma tes

*When the or CaO 00A cleary

deotiHCoS t centrs
they use belo apportin ment of OVerhead m4hod

There 19 deMoiti00 for PporLiooment bas e t ca be

ohanged according to coningen cy.
nno
 naie

o Pri marg A PPo rtio9ment

APportí0Oment&

02. Secondary pp9s tio0 meo t.

a m p le Por rea so na ble bas S
LFLoo areo
Tates, red
Volume of Space
heatioq lighting
Dumber of em ployees
wel are .
wages
CostoF oritten dodn value
>machi ner
ol Primary ApPor tionmeot.
T h i s means that
apportion me0t oFOVerheadS to t be
o r o d c t i o0 Or Servic
Cen eer according to a Selected
reaso 0aS2 bas ic, under thiS meth od oVver hea d Cost
dfvfdes
produCo o servlce centre In a reaSona ble coay

02 Secon dary ARPortion ment

* Tne collec ted over heads re

Qppor tioned Produc tion
centre & gervice Ceotre un der primar

*Norma\ly service enteNe Su ppoTE the produc tion

cen ters under the pri mary apportionment must be

0gain apporti0ned to the production to the production

cclled Ceconda ry appor ti0n Ment.

Ceotre. 4

ol C o n t nues Allotement Method

Two ctep M ethod

Mthods oF 02.

Secondary Equatioo Method.

A ppor Honmen- 0 3 . Simulta neous
 Year I1 Semester I (2018/2019)
Eco Business Management Marketing Management
Faculty of Management Studies
Lanka
Sabaragamuwa University of Sri
Lecturer: LD Kalyani
MM/EBM 2153 Management Aecountancy

Tutorial No. 03

1. The G.P organization has three production departments and two service departments and
following details of direct cost relate to each department

Production Department Service Dept.

Production A B 1 2
Department
Direct cost 100000 75000 60000 24260 18180

In addition above mention

costing, the following common expenses must be paid for all departments.

Expenses Rs.
Salaries& Wages 60000
Rent 12000
|EPF 9000
Electricity 15000

Also below details relate to this

organization.
Description Production Department Service department
B 2
Floor areaa 2¢00 800 600 600
Number of employees 200 200
18 13 12 4
KW(000) 50 20 15 12

There is an interrelated department services among department. The service

divided as follows; department cost can be

Production A B C
Dept. Service Dept.
Service 1 40% 20% 30% 10%
Service 2 20%
30% 40% 10%
 Primar APportlonment repor

Expenses Basi PoTo tal

ProduAon ep+ Sorvice deptt|
apportionm CoSt
A C

Direct 100 00q S 9 1, 180

60,000 4,2b0
Cost

Sa
laries S Number of60,000 , 600 S,690 4,400 3,69 4,200
wages emplOyees 6000x180009
So x1 00aa003900 4

Rent Floor 12000 4000 3000 3000 0 0

ared 12099RS600Sx
400 60 |s2o0)x 39)

e Pf NumberOF 090 39 40 23402160 S 40

mployees
S

Elec+rici 6000 4 SO 3600 300

is00 00is) 3oo x12(399*2)300 t)

So

000 |2s, oo0

Primary |134 840 DD 440 83,160 |30,

Cost

inot
 o2 Sec ondary Appor tieoment- Connues A\loiemet Method
Me-tua
(Pepoaded distibu-tto»
)

Produc tion ept Seruice 4ep

8 3,160 30 09
Total 34 8 40 00, 440
Oerhead
Dep oi 12 000 6,000 9,000 (30,000 3, 000

Bo coex 4(30000x ao7)30900 r3o/ 39 000 10)

28 090
Dep o S, 600 ,200 (81000
28000K32809313/ bs o00x40/68000 1)

Dep 28 09
O
i120
8 40 38 0) 80
200 x4] 28 00 r y8o0 x3 )
(2900x 10.)

Dep 56 56 60
3ox an)|339 x 2))| (380 7
4)|

8
Dep 8)
4 ) |Gx2 |(s 30)

3
S36 113,663104,3

innoit
 woStep method.

Produc40D dep
ServCe dep
A 8

Sotal 134.840 00440 83,160o 3909o S , ooo||

overhead

Dep oi
t2,000 6,000 9,000I30,000) 3 00o
(30 000K 4)|3o o00 K2o 6o o00 x 30)
30000Xy.

28 oo0
Dep o2 333 2, 444 Ca8 00)

S3,o6|11S, 743/104 Go4

(bc2 alreadq service dep o is closed.)

to a pply the Secondary

*Under the step me thod
the dep chiCh h as h e h ig hes t
select
OPPor190meot
service CoSt oF that dep
2eriCe coS t, and to tal
o ther accor ding to ho E proV ide
dis tribu te
thers. Cba sed oD g i Ven rati)

t h a t Serutce o
st tep t s ass ume
*End of the
is already Ctoced.

inoue
 9021
0
Dale 28
Method
£qua H0o
Simu l t a n eous

Se rvice de

Assume h e m a s S 0 o 0

under
cos
To tal
dis
the imary
pr

E g u a +ions
z 30 000

3o O0o+OIy 2S 000
y-o1
S o00 + 0

3 00000

2 S 0 0 t 3000 oo
Y-o-12a
+ 1 0 -Y
3 2 S000

3 2 S 000

9
seruice O
3 2, 828

to
Subs titute 32 ,828

30 0 0 0

30 o0
32828 -9.1
2808
2 &28

Service
8, 280

inno
 Produc ti0n deP Servie dep

o tal o 4 13 4 8 40 o0, 440 8 3,1b0D 32,828 28, 1 8 o

Seroice o 3 13 65 66s & 48

(3288 x40)ea8a8 x ao) ga 82S x 30]

26,280
28,28 0)
565 8 4 834 ,312

I53,62+| 1s,49o 10, 320

O 4. Over head Absorption.

* I h e method of sPTeading oE Overbe ad a penses o tbe

CoSt centers oY Costuni ts are k nown as o verhead ed

reFéyed to as a ppCa tionS OF Ov erhead)

a bsorPEion.CclSo

means the dis tribution of the Over head epeOseS

Absorpti0
Over he uni t s Produ ced in that
aloted to a partfcular dept.
department.

base that ca be used calculate overh ead

The Various

absorp tion ratios.

Production uni tS basiS

Direct labour hours

- Machinerg nours
percentage of direct materia ls, labour & EnpenSes

Percen tage oF PrimcarycoSt

innet
 2. Calculate the various absorption of overhead
ratios by using below Centre 52.

Estimate total overhead for period Rs. 6000) )

Estimate total direct labour hours for period 800

Estimate total direct salary Rs.1600

Estimate total direct materials Rs. 3000

Estimate total production 25 units

Estimate total 25 machine hours

Bastc Calculations Rate

Direct Total o4 CoSt

ma +eci al irect material

6000 x100 200. 00

3000

Labour hour Total OH CoSA

direct labour hour

6O00 2 .S
ss

7. on ogos To4al o4 Cost X00.

direct Salar
6000 x 100
3TS7 31S
600

.on prime otal O4 cOst

COSt materia+Slary
60o X 00 2 130y 1307.
3 o 00 \600
 To tal OH Co St
unit
antS

Pso40 per unit es 4 0 /2

Machinery Total oH CoSt

houS machinery hours

s s per heur RS Sl2

200

Eample

TatO g by u SiNq
Calculate
Various
a bsorpti0n
belo infor matioD.

s 3000.
Es+imate to4al OH COSt For period
Direct abouY hourS 400o.
Oirect
Drect materialS 12 o0o

2000 units.
UDitS For period
Productioo
mochi n e hours 4-000

innoe
 ate
Calu a tions
64SiS

S
Y10O
30 00

Difec t 12 000
materia

. | per bour
3000
abour
I 4-00

33. 33 /
3000 1007
On wages
Goo0

3000 x 100 147

prime cOSt 2 000 + oo0

O 7S Per hour
Macni ne 3000

+000
curS

3000 S P er anit RS 1S|

000
 supplied
suppli
are
with the following information and required to compute overheads of
You
3.
Departments A,B and C, after distribution of overheads of service
production2

Continued Distribution and Simultaneeous Equation methods. departments by

particulars
Total Production Dept.
B
Service Dept.
P Q
Rs Rs Rs Rs Rs Rs
12000 2400 4800 2000
Rent 2000 800
4000 800
Electricity 2000| 500 400 300
Indirect 6000| 1200 2000 1000 800 1000
5000 2500 1600
labour 200 500 200
4500 910 2143
Depreciation
847 300 300
X T000 X2500
Sundries

Estimated
x 1400X
working hours 1810 1 S 3 4S474 000 boo
penses of service.Departments P & Q are apportion as under.

B C Q
30% 40% 20% 10%
10% 20% 50% 20%
Q

Production de gervice dep

A C P

OH COSt 4810 2 S43 A S47 26 O6

dep o 20 0 60 (400o) 4DO

4000X30/)(4 000 x401) 4 000 x 2a) ) 0 00107.)
3 o00

dep o2 3 000 6oc SO0 C3o0)

600 O

dep ol 8o 4 20 C6oo) 60

G00 x30)) (600 x 40) (so0 x 90) (600 x Idy)

6O

dep o2 6 2 30

60X 1) (60X9o) |(Goxs o o X 0)

12

dep ol C12)
(2x 3o.) (1340/)1x30) (12 l )
innor
dep 02 | a)
G x 1 7 ) x 2 ) | aso)

5, 000 6,999
9soo

Simultaheous equation method

4000+0.2
a600
2600 0 X

6 0 Oo-

A+Cx -0 2g) 26 O00 + 4 000

3 O
3 0 O0o
.8y
300Oo

.8
2 3061 0 Service)

Sy bsti+ute y 306 toE)

4000 +
000 O 2 X 306

4 000 62. 2

4612 (P service)
 Dro du Ction
de Serulce dep
A

810 2,S3 4 S4t 4,O00 2,60O

Der 138 3 844 22 4612) 46

C4 610 x td
2 3061

306 62 S3
G12 C306
der Go oD Co61K20,)6o61 y So) Gob o
 ate

Ihe overhead
two service departments.
departments and
4. A company
has three production and service departments
overheads of production
of
the following totals
analysis sheet provides
Total Overhead

Rs
Production Dept.
96000
A
84000
B
60000
C

Service Dept.
28080
X

Y
36000
304080

are to be apportioned as follows;

The expenses ofservice departments
Production Dept Service Dept
B C
30% 10%
Service Dept X 20% 40%
40% 20% 20% 20%
Service Dept Y

after distribution the overhead cost of

Required to compute overhead of production departments
service departments by both:

) Repeated Distribution method. i) Simultaneous equation method.

 P

O
0D
 Dale

E u a + i 0D
MethodS
Ci multaneous

28o8o -

28o8 o + 3 36 000
012
3 6 000

x10, 860 00O E

o - 2

Suhstitute 39 600 to

o - a + ( x -o 2 ) 36 000 + 2508o 28 ogot0 3

388,o80 28 08o-(o3x s960
36,ooo
.84 2 3 8 8.o8o

368060
9-8
3 9 b00 -

Produc tion dep Sev vlce de

A
To tal OH 06, 32o 8.+30 36,00 39,60o

dep y 15, 600 7,800

(31 O00 40)000x 33/) 39 ao0 Ya d
(31,09o)
36 006
900 14400 10, 800 C36 0co)
(36000 x30) (36 000r eo6 0oe r2:/)
 The following tigures have bcen extracted lrom the
books of a
.

jobs pass through the company's two departments.

manulacturing concern. Al

Production Dept. Finishing Dept.

Rs.
Rs.
Material used 6000
S00
Dirct labour 3000
1500
Factory overhead 1800
1200
Dirct labour hous 12000 5000
Machine hours 10000 2000
The following intormation pertains to work order no. 111

Production Dept. Finishing Dept.

Rs. Rs.
Material used 240 20
Direct labour 130 50
aciory overhead 530 140
Direct labour hous 510 50
Machine hours
You are required to prepare a statement showing the different cost result for work order no.111
under the three commonly used methods.

. Base on direct labour (%)

2. Direct labour hours rate (Rs.)
3. Materialhour rate (Rs.)
mac hi ne

ce

innu&
 Dal .

Calcalation
Poductiod Cioishing

Direc tE 1200 Y00,

labotr 3000 IS00

Di rect
labour hrs 20000

z .S
24

Machine hrs 1800 200

0 00o
2000

o 18 O 6

Direct wages basis abour hrs basis

froduct) op Machin e hrs ba sts
Finisking Prod
Prod Fin
Ma 4eri al
240 240 20
40 20
Dire ct 30 SO 130
lqbour So 30 SO

Prme cos t+ 310 0 310

370

inn
 Date
Di rect wages basis |Lqbaur hrs basis Machine hrs basts
Prd in erod
irect 3 0 Y 60 (so xeoy) fin.

wages
48 40
basiS

Direct S30 y 01S)| C4o 0.29 Y

abour hrs 19 S 33.6

basis

Machi ne
SIOX018) |Goxo-6)
hrs baSis
3

Total a8 37040+70(a1s+30) 83.6+7)Gs+310) (30+76)|

4 48 10 2441S LO 3 6 461. 8 LOO

ICe
 Jate... /
.

6. Calculate five different overhead absorption rates for cost centers 17 based on the following
budgeted data.

Labour hours for period 1400

Total direct wages for period Rs. 3600

Total direct material for

period Rs. 7500

Total machine hours for period 2850

Total units produced for period 535

Total overhead for period Rs. 12900
A cost unit has been produced in cost centre 17 and the following details recorded.
Direct material used Rs. 16.50
Direct Wages Rs. 17.50
Direct labour hours
Rs. 5
Machine hours 8%
tal
Calculate the cost of this unit
using each of the absorption bases calculated in a.

Basis Calcui at10 n

DirectE 2 00o . 12
Ma teria 7S00

La bour hour
21
400
Per ho ur

XL0J. 3S8 3 s8 )
3600

. on Pri me
00. 16/.
CoSt
t6.
7SO0+3600

Machine 12 900 A S3 RS 4 s3
8 o
hour Per h0 ur

iuon
 Dare.

Unt 12 906 24 1 / RS 24
S3S
Per unit

Toa Cost

To tal CoSt oH Co St + Prim e

CoSt

Prime cOst Direct materia)+ DirecA ags

used

asis CeLlc \ations

Over head Cos sime CoStTotal Co St

Direct ma teri 6-7S x F2 28 38 3 62. 38

6 S0 7.$°)
ice

abour hour(5 S 21) S0.6S

3 4 80 6S5

on ages 7.5x 3ss) 62.6S 3 4 6.6S

7.o0 prime (34 16) 394 4 34 3. 4 4

3 4 t2.S
Machine houy SK4 S3) 38 s

34 S.
Cost per 4 24

unit

nno