Professional Documents
Culture Documents
BR 2
BR 2
For the purpose of separating fixed and variable components of the cost, the overhead cost is
determined at various levels of output and pairs of values of X and Y are fitted in the above
formula in order to compute the values of m and c. For example:
From the data in Illustration 4.1, we take any two months and find out fixed and variable
components.
Let us take Jan. and Feb., make two equations.
Y = mX + c
For Jan. 2,200 = 80m + c .….(i)
For Feb. 1,600 = 40m + c …..(ii)
Thus fixed cost is Rs. 1,000 and variable cost in January is Rs. 1,200 (i.e 2,200 -1,000)
In this way, we can place the value of m in any month’s equation and derive the variable and
fixed components.
This method provides a simple and accurate means of separating fixed and variable overhead
costs.
1
Solution to the “Illustration no. 2”
Overhead Distribution Summary
Note: Direct wages and direct materials of service departments are indirect costs and thus included in the overheads.
2
Solution to the “Illustration no. 3”
Computation of Machine Hour Rates
3
Solution to the “Illustration no. 4”
Maximum capacity
= Total days in the year × No. of hours worked per day.
= 365 × 8 = 2,920 hours.
4
Solution to the “Illustration no. 5”
60,640
¿ × 100=5 % of cost
12, 12,800
As there is under-absorption of overhead, it is a plus rate i.e. the cost of finished goods, work in progress and cost of goods sold will be
increased by 5% as shown below:
Finished goods = Rs. 2,30,732 × 5% = Rs. 11,536.60
Work in progress = Rs. 1,41,480 × 5% = Rs. 7,074.00
Cost of goods sold = Rs. 8,40,588 × 5% = Rs. 42,029.40
Total 60,640.00
5
Solution to the “Illustration no. 6”
Rs.
X @ Rs. 5 per machine hour for 10,000 hours 50,000
Y @ 75% of direct labour cost of Rs 1,20,000 90,000
Z @ Rs. 4 per piece for 15,000 piece 60,000
Total overhead absorbed 2,00,000