Professional Documents
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PARAMJIT SHARMA
Departmentalization
P1 P2 P3 S1 S1
PARAMJIT SHARMA
Departmentalization
P1 P2 P3 S1 S1
PARAMJIT SHARMA
Departmentalization
Factory
Overheads
Allocation &
Apportionment
P1 P2 P3 S1 S1
PARAMJIT SHARMA
Service Departments
Repair Maintenance
Department Department Power House
Boiler
House Time-Keeping Transport
PARAMJIT SHARMA
Distribution of
Overhead
ALLOCATION APPORTIONMENT
Specific Common
Costs Costs
PARAMJIT SHARMA
Distribution of
Overhead
ALLOCATION
Allocating whole
amount Of an item
of POHs to the
department for which
The expenditure was
incurred
Specific
Costs
PARAMJIT SHARMA
Distribution of
Overhead
APPORTIONMENT
PARAMJIT SHARMA
Principal Basis of Apportionment Of Overheads
Floor Area
Number Of Employees
Machine Hours
Light Points
Kilowatt Hours
Technical Analysis
PARAMJIT SHARMA
BASIS FOR APPORTIONMENT
PARAMJIT SHARMA
BASIS FOR APPORTIONMENT
No.Of
Welfare Expenses, time-Keeping ,pay-roll
Office, Canteen, Recreation, Supervision Employees
Medical Expenses
Machine
Repairs & Maintenance of Plant &
Machinery Hours
PARAMJIT SHARMA
BASIS FOR APPORTIONMENT
Light Points
Electricity Charges
Or
Kilowatt Hours
PARAMJIT SHARMA
BASIS FOR APPORTIONMENT
Horse
Motive Power Expenses
Power
PARAMJIT SHARMA
BASIS FOR APPORTIONMENT
Value or
Weight of
Materials
Store Keeping Expenses
Truck Mileage
Tonnage
Truck Hours
Transport Service Expenses
No.Of Pakages
PARAMJIT SHARMA
PRINCIPLES OF APPORTIONMENT
Utility or
Service Survey Method
Principle
Efficiency
Ability To Pay
Principle
PARAMJIT SHARMA
PRINCIPLES OF APPORTIONMENT
Utility or
Service
Principle
Service or Benefits
received
By the department
PARAMJIT SHARMA
PRINCIPLES OF APPORTIONMENT
Ability To Pay
PARAMJIT SHARMA
PRINCIPLES OF APPORTIONMENT
Survey Method
PARAMJIT SHARMA
PRINCIPLES OF APPORTIONMENT
PARAMJIT SHARMA
Quick Check
Identify the Basis for following Overheads
Rent Floor Area
Plant Repairs Value of Plant
Power Machine Hours/HP/VM
Depreciation of Building Value Of Building
Building Repairs Value Of Building
Insurance Of Building Floor Area
Fire Insurance of Stock Value Of Stock
Lighting Expenses No.Of Light Points
Supervision No.Of Employees
Power Kilowatt/Value of Plant
ESI Direct Wages
Employer’s Cont. to PF Direct Wages
Amenities To Staff No.Of Employees/Wages
Canteen No.Of Employees
Gn. Overheads Direct Wages
PARAMJIT SHARMA
Summary Of Departmental Overhead Distribution
PARAMJIT SHARMA
Summary Of Departmental Overhead Distribution
PARAMJIT SHARMA
Redistribution of Overheads
Reapportionment of Overheads
Secondary Distribution Of Overheads
PARAMJIT SHARMA
Service Department Cost
Re-Apportionment
Production Service
Departments Departments
PARAMJIT SHARMA
The Need for Cost
Re-Apportionment
How are service First, we identify the factor
department costs that drives costs in the
charged to operating service department.
departments? This cost driver is used
as the apportionment base.
PARAMJIT SHARMA
The Need for Cost Apportionment
PARAMJIT SHARMA
The Need for Cost Apportionment
Third, we apportion
the service
department cost
based on the
relative amount of
the apportionment base
used in each
operating department.
PARAMJIT SHARMA
The Need for Cost Apportionment
PARAMJIT SHARMA
The Need for Cost Apportionment
First Stage Apportionment
Service department costs are
Service apportioned to operating
Department departments.
(Cafeteria) Operating
Department
Service (Machining)
The
Department
Products
(Accounting) Operating
Department
Service (Assembly)
Department
(Personnel) PARAMJIT SHARMA
The Need for Cost Apportionment
Second Stage Apportionment
Operating department overhead costs and
apportioned service department costs are
Service applied to products.
Department
(Cafeteria) Operating
Department
Service (Machining)
The
Department
Products
(Accounting) Operating
Department
Service (Assembly)
Department
(Personnel) PARAMJIT SHARMA
Selecting Apportionment Bases
Personnel: Custodial:
Number of Square
employees Criteria footage
Receiving: Cafeteria:
Units Easiest Number of
handled employees
Accounting:
Security: Staff Power:
Square hours Kilowatt
footage hours
PARAMJIT SHARMA
Re- apportionment Basis
PARAMJIT SHARMA
Re- apportionment Basis
PARAMJIT SHARMA
Re- apportionment Basis
Time Keeping,
Security
Canteen
Welfare •Number Of Employees
Recreation •Total Labour Hours or
•Wages or Salaries
Medical
Personnel
Pay Roll
PARAMJIT SHARMA
Re- apportionment Basis
Factory
No .Of Employees
Office
PARAMJIT SHARMA
Re- apportionment Basis
Building
Relative Area Of Each Deptt Service Deptt
Boiler
% Of Steam Utilized
House
PARAMJIT SHARMA
Interdepartmental Services
Problem
Problem
Re
Re Apportioning
Apportioning costs
costs when
when service
service departments
departments
provide
provide services
services to
to each
each other
other
Solutions
Direct Method
Step method
Reciprocal method
PARAMJIT SHARMA
Direct Method
Service Operating
Interactions Department Department
between service (Cafeteria) (Machining)
departments are
ignored and all
costs are
allocated directly
to operating Service Operating
departments. Department Department
(Custodial) (Assembly)
PARAMJIT SHARMA
Direct Method Example
PARAMJIT SHARMA
Direct Method Example
PARAMJIT SHARMA
Direct Method Example
20
INR 360,000 × 20 + 30 = INR 144,000
30
INR 360,000 × = INR 216,000
20 + 30
25,000
INR 90,000 × = INR 30,000
25,000 + 50,000
50,000
INR 90,000 × = INR 60,000
25,000 + 50,000
PARAMJIT SHARMA
Step Method
Service Operating
Department Department
Custodial will (Cafeteria) (Machining)
have a new
total to Apportion
to operating
departments; its
own costs plus
those costs Service Operating
allocated from Department Department
the cafeteria. (Custodial) (Assembly)
PARAMJIT SHARMA
Step Method
PARAMJIT SHARMA
Step Method Example
We will use the same data used
in the direct method example.
PARAMJIT SHARMA
Step Method Example
Apportion
Apportion Cafeteria
Cafeteria costs
costs first
first since
since
itit provides
provides more
more service
service than
than Custodial.
Custodial.
PARAMJIT SHARMA
Step Method Example
10
INR 360,000 × = INR 60,000
10 + 20 + 30
20
INR 360,000 × = INR 120,000
10 + 20 + 30
30
INR 360,000 × = INR 180,000
10 + 20 + 30
PARAMJIT SHARMA
Step Method Example
25,000
INR 150,000 × = INR 50,000
25,000 + 50,000
50,000
INR 150,000 × = INR 100,000
25,000 + 50,000
PARAMJIT SHARMA
SECONDARY OVERHEAD DISTRIBUTION SUMMARY
Particulars Total Rs. Base Service Departments (Rs.) Production Departments
P Q R S X Y Z
Factory 5,95,000 Given 45,000 75,000 1,05,000 30,000 1,93,000 64,000 83,000
overhead
Add :
Service
Dept.costs
DLHs
0 Rs.80,000 in -80,000 24,000 12,000 16,000 12,000 16,000
Q
(6:3:4:3:4)
Area
R 0 (Rs.1,33,000 -1,33,000 19,000 57,000 28,500 28,500
in
(10:30:15:
15)
DLHs
0 (Rs.66,000 -66,000 24,000 18,000 24,000
S in 4:3:4)
Repeated
Distribution
Method
Algebraic
Simultaneous
Equation
Method
PARAMJIT SHARMA
Reciprocal Services Methods
PARAMJIT SHARMA
Calculation Of Total Costs Of Service Departments
PARAMJIT SHARMA
Secondary Overhead Distribution Summary
Production Departments Total Rs.
Particulars (Rs.)
A B C
PARAMJIT SHARMA
Reciprocal Services Methods
Repeated
Distribution
Method
PARAMJIT SHARMA
Question
A factory is having 3 prod . Departments A,B & C, and 2 service
Departments Boiler House and Pump Room. The boiler house
was to depend upon the pump Room for supply of water and in turn ,
depends upon the boiler house for supply of steam power for driving
the pump The expenses incurred by the production department
during the period are: A Rs 8,00,000,B Rs 7,00,000
And C Rs 5,00,000.The expenses of Boiler house are Rs 2,34,000
and the Pump House Rs 3,00,000.The expenses of Boiler House
and Pump house are Apportioned to the prod. departments
on the following basis
A B C BH PR
Expenses Of Boiler House 20% 40% 30% - 10%
PARAMJIT SHARMA
Secondary Overhead Distribution Summary
Prod Departments (Rs) Service Dept
Particulars Total Basis (Rs)
A B C Boiler Pump
Rs
P Distribution 25,34,000 given 8,00,000 7,00,000 5,00,000 2,34,000 3,00,000
Add Service Dept. Costs
Algebraic
Simultaneous
Equation
Method •Total Costs of Service Departments are
Expressed in algebraic equation
PARAMJIT SHARMA
Algebraic Equation
X= OHE’s + % of Y
Y= OHE’s + % of X
M N P R S
R 20% 30% 40% - 10%
PARAMJIT SHARMA
Quick Check
How
How much
much cost
cost will
will be
be apportioned
apportioned from
from
Administration
Administration to
to Accounting?
Accounting?
a.
a. INR
INR 36,000
36,000
b.
b. INR144,000
INR144,000
c.
c. INR180,000
INR180,000
d.
d. INR
INR 27,000
27,000
20
INR180,000X = INR 36,000
20 + 80
PARAMJIT SHARMA
Quick Check
How
How much
much total
total cost
cost will
will be
be apportioned
apportioned
from
from ADMIN
ADMIN and
and BACS
BACS combined
combined toto the
the
Accounting
Accounting Department?
Department?
a.
a. INR
INR 52,500
52,500
b.
b. INR135,000
INR135,000
c.
c. INR
INR 270,000
270,000
d.
d. INR
INR 49,500
49,500
PARAMJIT SHARMA
Quick Check
How
How much
much total
total cost
cost will
will be
be apportioned
apportioned from
from
ADMIN
ADMIN andand BACS
BACS combined
combined to to the
the Accounting
Accounting
Department?
Department?
a.
a. INR
INR 52,500
52,500
b.
b. INR
INR 135,000
135,000
c.
c. INR
INR 270,000
270,000
d.
d. INR
INR 49,500
49,500
18
INR 90,000 × 18 + 102 = INR 13,500
PARAMJIT SHARMA
Quick Check Data
PARAMJIT SHARMA
Quick Check
How
How much
much total
total cost
cost will
will be
be apportioned
apportioned from
from ADMIN
ADMIN
and
and BACS
BACS combined
combined to to the
the Accounting
Accounting Department?
Department?
a.
a. INR
INR 35,250
35,250
b.
b. INR
INR 49,072
49,072
c.
c. INR
INR 18,000
18,000
d.
d. INR
INR 26,333
26,333
PARAMJIT SHARMA
Overhead Appropriation
Few Questions
PARAMJIT SHARMA
4. SECONDARY DISTRIBUTION SUMMARY
PARAMJIT SHARMA
1. Overhead Analysis Sheet
Rent and rates Floor space 5,000 1,000 1,250 1,500 1,000 250
(4:5:6:4:1)
General lighting Light points 600 100 150 200 100 50
(2:3:4:2:1)
Indirect wages Direct wages 1,939 600 400 600 300 39
(600:400:600:300:39)
Power H.P. of Machine 1,500 600 300 500 100 -
(6:5:5:1)
Depreciation Value of machines 10,000 2,400 3,200 4,000 200 200
(12:16:20:1:1)
Direct wages Actual 1,695 - - - 1,500 195
Indirect materials Actual 966 300 200 200 - 266
21,700 5,000 5,500 7,000 3,200 1,000
Apportionment of
Service
Departments
Overhead
S1 Direct wages
1,200 800 1,200 (-) 3,200 -
S2 (3:2:3)
Given
200 300 500 - (-) 1,000
(2:3:5)
Total (A) 21,700 6,400 6,600 8,700 Nil Nil
Working hours (B) 2,560 3,000 1,500
Overhead rate per working hour [(A) ÷(B)] 2.50 2.20 5.80
PARAMJIT SHARMA
COST OF PRODUCT – X ( Rs)
Direct material 50.00
Direct Labour 30.00
Prime Cost 80.00
Factory Overhead :
P1 : 4 x 2.50 10.00
P2 : 5 x 2.20 11.00
P3 : 3 x 5.80 17.40 38.40
Cost of Product X 118.40
PARAMJIT SHARMA
3. SECONDARY OVERHEAD DISTRIBUTION SUMMARY
Particulars Total Rs. Base Service Departments (Rs.) Production Departments
P Q R S X Y Z
Factory 5,95,000 Given 45,000 75,000 1,05,000 30,000 1,93,000 64,000 83,000
overhead
Add :
Service
Dept.costs
DLHs
0 Rs.80,000 in -80,000 24,000 12,000 16,000 12,000 16,000
Q
(6:3:4:3:4)
Area
R 0 (Rs.1,33,000 -1,33,000 19,000 57,000 28,500 28,500
in
(10:30:15:
15)
DLHs
0 (Rs.66,000 -66,000 24,000 18,000 24,000
S in 4:3:4)
PARAMJIT SHARMA