Cost & Management

Accounting

Factory overhead
Lecture-15
Mian Ahmad Farhan (ACA)
Cost Allocation

Cost that can be identified with a specific cost center.

Apportionment

Cost that can not be identified with a specific cost centre but
must be shared out between two or more center.
 Apportionment & Allocation

Non Reciprocal Reciprocal

Repeated allocation method Algebraic method

Exercise
Following data are extracted form the estimates prepared by Plastic
Pots & Furniture for the accounting year: -

Electricity Rs. 54,000

Bonus Pay 21,000

Factory Rent 240,000

Power 747,000
Depreciation 195,000
Exercise

Costs of service departments are prorated only to production

departments: -

Canteen Cost Apportion on No. of employees ratio. Machine

Maintenance in the ratio of 1:2:1.
 Cost centers

Cost centers are area of a business of which cost can be identified.

 Exercise
Following further data are also available:

Production Department Service Department

Molding Machining Finishing Canteen Maintenance
Materials (Rs.) 300,000 130,000 45,000 40,000 75,000

Wages (Rs.) 400,000 750,000 755,000 95,000 100,000

Cost of Assets (Rs.) 125,000 250,000 130,000 70,000 75,000

Horse Power Hour 700 1,400 600 88 200

Area in Sq. Yard 180 180 240 60 60

Metered Units 6,000 6,000 7,000 2,000 3,000

No. of Employees 240 300 380 30 80

 Solution
Plastic Pots & Furniture
Work Sheet
Apportionment of Factory Overhead Product Deptt.
Production Department Service Department
Cost Heads Molding Machining Finishing Canteen
Machine Total
Maintenance
Allocated Cost (Identified)
Materials 40,000 75,000 115,000

Labor Wages 95,000 100,000 195,000

135,000 175,000 310,000

Electricity 13,500 13,500 15,750 4,500 6,750 54,000

Bonus Pay 4,000 7,500 7,550 950 1,000 21,000

Factory Rent 60,000 60,000 80,000 20,000 20,000 240,000

Power 175,000 350,000 150,000 22,000 50,000 747,000

Depreciation 37,500 75,000 39,000 21,000 22,500 195,000

c/f 203,450 275,250 156,700

 solution

b/f 203,450 275,250 156,700

No. of Employees 48,828 61,035 77,311 (203,450) 16,275

291,526

Division (1:2:1) 72,882 145,763 72,881 (291,526)

Total 411,710 712,798 442,792

Apportionment Electricity

Basis Metered units

Canteen Machine Molding Machining Finishing

Maintenance
Total
2,000 3,000 6,000 6,000 7,000 24,000
2 3 6 6 7 24
2/24 3/24 6/24 6/24 7/24
Apportionment Electricity

Molding 54,000/24*6 13,500

Machining 54,000/24*6 13,500
Finishing 54,000/24*7 15,750
Canteen 54,000/24*2 4,500
Machine 54,000/24*3 6,750
maintenance
Apportionment Bonus Pay

Basis Labor wages

Molding Machining Finishing Canteen Machine

Maintenance
Total
400,000 750,000 755,000 95,000 100,000 2,100,000

400 750 755 95 100 2100

400/2100 750/2100 755/2100 95/2100 100/2100
Apportionment Bonus Pay

Molding 21,000/2100*400 4,000

Machining 21,000/2100*750 7,500
Finishing 21,000/2100*755 7,550
Canteen 21,000/2100*95 950
Machine 21,000/2100*100 1,000
maintenance
Apportionment Rent

Basis Area Occupied

Molding Machining Finishing Canteen Machine

Maintenance
Total
180 180 240 60 60 720
180/720 180/720 240/720 60/720 60/720
Apportionment Rent

Molding 240,000/720*180 60,000

Machining 240,000/720*180 60,000
Finishing 240,000/720*240 80,000
Canteen 240,000/720*60 20,000
Machine 240,000/720*60 20,000
maintenance
Apportionment Power

Basis Horse Power

Molding Machining Finishing Canteen Machine

Maintenance
Total
700 1,400 600 200 88 2,988
700/2,988 1400/2988 600/2988 200/2988 88/2988
Apportionment Power

Molding 747,000/2988*700 175,000

Machining 747,000/2988*1400 350,000
Finishing 747,000/2988*600 150,000
Canteen 747,000/2988*200 22,000
Machine 747,000/2988*88 50,000
maintenance
Apportionment Deprecation

Basis Power

Molding Machining Finishing Canteen Machine

Maintenance
Total
125,000 250,000 130,000 70,000 75,000 650,000
125 250 130 70 75 650
125/650 250/650 130/650 70/650 75/650
Apportionment Deprecation

Molding 195,000/650*125 37,500

Machining 195,000/650*250 75,000
Finishing 195,000/650*130 39,000
Canteen 195,000/650*70 21,000
Machine 195,000/650*75 22,500
maintenance
 Reciprocal Appropriation (Repeated
Appropriation Method

Machining Finishing Maintenance Air-conditioning Allocated

indirect cost
100,000 70,000 40,000 30,000 240,000

Machining Finishing Air-conditioning

Maintenance 60% 15% 25%

Appropriation
Air Conditioning 70% 25% 5%
 Solution

Production Service
Allocate Machining Finishing Maintenance Air-conditioning
Indirect cost
(240,000) 100,000 70,000 40,000 30,000
Maintenance 24,000 6,000 (40,000) 10,000
Air conditioning 28,000 10,000 2,000 (40,000)
Maintenance 1,200 300 (2000) 500
Air conditioning 350 125 25 (500)
Maintenance 15 3.50 (25) 6.50
Air conditioning 5 1.50 0.50 (6.50)
153,570 86,430