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SECONDARY DISTRIBUTION OF OVERHEAD Apportionment of the OH of Service Cost Centre to Production Cost Centre
Transfer of the OH of Service Cost Centre to Production Cost Centre Service Cost Centre Cost Basis of Apportionment
1
Direct Method - Non-reciprocal Method -
Additional Information: Additional Information: Service CC S2 – Maximum Service
P1 P2 P3 S1 S2 P1 P2 P3 S1 S2
Total OH (Rs.) 6300 7400 2800 4500 2000 Total OH (Rs.) 6300 7400 2800 4500 2000
Direct Labour Hours 3600 3200 2200 Direct Labour Hours 3600 3200 2200
No. of Requisitions 900 600 500 No. of Requisitions 900 600 500
SECONDARY DISTRIBUTION SUMMARY - Direct Method SECONDARY DISTRIBUTION SUMMARY - Step Method
Particulars Basis of Apportionment Total Production Cost Centre Service Cost Centres Basis of Apportionment Total Production Cost Centre Service Cost Centres
P1 P2 P3 S1 S2 P1 P2 P3 S1 S2
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Total as per Primary 23000 6300 7400 2800 4500 2000 23000 6300 7400 2800 4500 2000
Distribution
S1 Labour Hrs. 1800 1600 1100 -4500 No. of Requisitions 720 480 400 400 -2000
S2 No. of Requisitions 900 600 500 -2000 Labour Hours 1960 1742 1198 -4900
Simultaneous Method –
Reciprocal Method – Repeated Distribution Method
Let X = Total OH of Dept. S1
Additional Information: Apportionment % Let Y = Total OH of dept. S2
P1 P2 P3 S1 S2 X = 4500 + 20 % of Y - - - - - - - - - - (1)
S1 40 30 20 - 10 Y = 2000 + 10% of X - - - - - - - - - - - (2)
S2 30 30 20 20 - 10X = 45000 + 2Y - - - - - - - - - - - - - (3)
10Y = 20000 + X - - - - - - - - - - - - - - (4)
Total OH 6300 7400 2800 4500 2000
Multiplying equation (3) by 5 and rearranging –
SECONDARY DISTRIBUTION SUMMARY - Step Method
Particulars Production Cost Centre Service Cost Centres 50X – 10Y = 225000
P1 P2 P3 S1 S2 -X + 10Y = 20000
Rs. Rs. Rs. Rs. Rs.
49X = 245000 Thus X = 5000 & Y = 2500
Total as per Primary 6300 7400 2800 4500 2000 Items Total Production Dept.
Distribution
P1 P2 P3
S1 1800 1350 900 -4500 450
Rs. Rs. Rs. Rs.
S2 735 735 490 490 -2450
S1 196 147 98 -490 49
Total OH 16500 6300 7400 2800
S2 15 14 10 10 -49 S1 (90% of 5000) 4500 2000 1500 1000
S1 4 4 2 -10 S2 (80% of 2500) 2000 750 750 500
Total OH 9050 9650 4300 7 Dr. Ratnesh Chaturvedi, COMA, Session – 9-10 8
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Total OH 23000 9050 9650 4300
2
PROCEDURE OF LINKING OF OVERHEAD Methods of Absorption : Absorption Rates
Classification 1. Direct Material Cost Percentage Rate = Prdn. OH x 100 / Dir. Matrl. Cost
and Collection
of Overhead 2. Direct Wages Percentage Rate = Prdn. OH x 100 / Dir. Wages Cost
Absorption :
After secondary distribution overhead
Allocation & for each dept. is found out so that 3. Prime Cost Percentage Rate = Prdn. OH x 100 / Prime Cost
Apportionment each job or product gets due share of
OH when it passes through that dept.
of Overhead
Thus, OH absorption involves 4. Labour Hour Rate = Prdn. OH / Labour Hours Required for Production
apportionment of OH relating to a
Absorption of dept. among the units produced in
that dept. during the relevant period.
Overhead 5. Cost Unit Rate = Prdn. OH / No. of Cost units produced