4.

34
Cost Accownting
YOu are required to prepare a schedule showing the distribution of overhead costs oe
service departments to the three production departments he fo
Solution
Servnce department P is the most serviceable department, 1.e., it renders service to tha
number of production as well as other service departments. It does not receive any service the fro
service departments. Therefore, cost of 7 45,000 of service
departments P is apportioned ta other
departments in the ratio of number of employees. The next most serviceable all
renders its services to all other department is n
departments except P. Therefore, its cost of R 80,000, i.e., 7 7s
5,000 apportioned share of Deptt. P is apportioned to all departiments except service departme
Then R departmente's cost is nent .
apportioned to all departments except P and Q and lastlv
department summary iscost
S is
apportioned to only production departments. Overhead distribution
ion summar
prepared as follows
Overhead Distribution Summary
Items Basis of Service Deptts. Production Depts
apportionment Q R

Overhead costs
Cost of Deptt. P 45,000 75,000 1,05,000 30,000 1,93,000
No. of employees()45,000 5,000
64,000 83,000
Cost of Deptt. 4,000 5,000 10,000
Labour hours 80,000 12,500 8,500
Cost of Deptt. * 24,000 12,000 16,000 ,000
Area -1,33,000 16,000
Cost of Deptt. 'S 19,000 57,000 28,500
Labour hours 28,500
Total )66,000 24,000 18,000 24,000
3,00,000 1,35,000 1,60,000
Note: Students should note that in the
Service Deptts. column, 'steps' are formed. This is reason
method is known as 'Step Ladder Method. the wity
Problem 4.8
The following particulars relate to processing machine
(a) Cost of machine- 10,000 treating
a typical material:

() Estimated life-10 years

(c) Scrap value-7 1,000
()Yearly working time (50 weeks of 44 hours
(e) Machine maintenance 200 hours p.a. each)- 2,200 hours
Setting up time estimated at 5% of total productive time
and is regarded as productive ume
g)Electricity is 16 units per hour at 10 paise per unit
(h) Chemical required weekly 7 20
() Maintenance cost per year- 7 1,200
) Two
attendants control the operations of
combined weekly wages are 7 140 machine together with 6 other machunes Their
(k)Departmental overhead allocated to this machine per annum ? 2,000
You are required to calculate the machine hour rate.
(B. Com., Bangalore)
OverheadC o s tC o n t r o 4.35

Solution
Calculation of Machine Hour Rate
Per yedr Per hoaus

StandingC h a r g e s 2,000
1. Department overhead

140x 50 1,000
2. Attendants wages
7 3,000
1.50

charges
per
hour
hou (7 3,000 2,000 hrs.)
Standing
Operating Charges
0.45
10,000-1,000
0.60
1.Depreciation2,000x10
Maintenance
(1,200 +2,000) 0.50
2.
3Chemicals (20x50
X50 1.60
Chemicals2,000 4.65
units @ 10 paise per unit)
Power (16 Machine Hour Rate
4.

2,200
hrs.
Calculation of effective 200
Working
Note:
Total
machine hour (50 44)
x

Maintenance
hours 2,000
Less : Effective working hrs. hours.
effective
calculating
deducted in
not
time, it is
as productive
time is given
As setting up
kate
Problem 4.9 Machine Hour
particulars compute 1,14,800
From the following 5,400

A Cost of machine 5,000

Tnstallation charges 12,000
machine 10 years
Anticipated life of of 10 years
3,000

Residual value at the end 8,640

annum
Rent and rates per 1,200

Insurance of the machine p.a. 1,080

maintenance p.a.
Repairs and
Consumable stores p.a. unit
Total production services p.a. hour
40 paise per
working (R Com., Delhi)
is 5 units per
Power cost 400 hrs p.a.
hours in aa year
each in yea
Setting
erng up time
(Non-productive)
(Non-prouu of
ht
eight
hours each

There are 300 working days

4.36
Rate
Hour
Machíne
of Per hour
Solution Computation
Per year

Standing Crarges: 12,000

3,000
8,640
Rent and ates
1,200
Insurance
Repairs a n d m a i n t e n a n c e
1,080
Consumable stores
25,920
Production services
12.96
Total
25,920, 2,000
hs.)
Standing charges.per
hour (7
Running Charges:
Depreciation
5.76
114,800+5,400 -5,000
1 0 10 x 2,000 2.00
Power cost (5 units @ 40 Paise per unit) 20.72
Machine Hour Rate

Note: Calculation of effective

working hours 2,400
Yearty hours (300 8) x
400
time (Non-productive)
Less: Setting up 2,000
Effective hours

Problem 4.10
hour rate:
rom the data given below, calculate the machine Per annum

Rent of the department (space occupied by machine 1/5th of the department) 780
Lighting (number of men in the department 12, two men engage on this machine) 288

Insurance, etc. 36
Cotton waste, oil, etc. 60
Salary of foreman (one-fourth of the foreman's time is occupied by
this machine and the remainder equally by the other two 6,000
The cost of the machine is ? 9,200 and it has an machines)
estimated scrap value of ? 200.
It is ascertained from past experience
() that the machine will work for 1,800 hourS
per annum;
(i) that it will incur anexpenditure of 7 1,125 in
(üt) that it consumes 5 units of power respect of repairs and maintenance
per hour at the cost of 16 paise per unit, and
(iv) that the working life of the machine will be
18,000 hours.
(B. Com., Mysore; Nagajuna
 Solation
Computation of Machine Hour Rate
Per year Per hour

Standing Charges

(780 1/5) 156.00

(288 x 2/12)
Rent
48.00
L i g h t i n g

Foreman's Salary
(6,000 l/4) 1,500.00
36.00
Insurance

Cotton waste, etc. 60.00

Total yearky charges 1300.00
1,800+ 1,800 hrs.) 1.00
Hourty rate (R
Variable E p e n s e s

9,200-200 0.50
Depreciation 18,000hrs.
0.06
18,000 hrs.)
Repairs ( 1,125 0.80
16 paise per unit
Power5 units@ Machine Hour Rate 2.36
and thus effective hours are
that setting up time of 200 hrs. is unproductive
Note. It is assumed
200 2,000.
-

2,200
Problem 4.11
Machine Hour Rate from
the following data:
Compute the
1,00,000
Cost of machine 10,000
Installation charges 5,000
Estimated sCrap value after the expiry
of its life (15 years) 200
Rent and rates for the shop per month 300
General for the shop per month
lighting 960

Insurance premium for the machine per

annum 1,000
annum
Repairs and maintenance expenses per
20
Power consumption 10 units per hour
Rate of power per 100 units
Estimated working hours per annum 2,200
600
nis includes setting up time of 200 hours
1
Shop supervisor's salary per month expected to devote
The supervisor is
th of the total area ofthe shop.
Com., Delhi:
Madras)
machine occupied (B
hhis time for supervising the machine.
4.38
Cost Accountin
Solution
Computation of Machine Hour Rate

Particulars Per month

Per hour
Standing Charges
Rent and Rates (200x 1/4) 50
General lighting (300x 1/4) 75
Insurance Premium (960x 1/12) 80
(600 x 1/5)
Shop supervisor's salary 120
Total yearly standing charges 325

Standing charges per hour

25X12
2,000 1.95
Variable Charges
Repairs and maintenance (1,0002,000)
Power consumption (10x20 paise) 0.50
Depreciation: 2.00
Cost 1,00,000
Installation charges 10,000
Total Cost 1,10,000
Less scrap value 5,000
1.05,000
Effective working life 2,000x 15 years = 30,000 hours
Depreciation per hour (1,05,000+30,000)
3.50
Machine Hour Rate
1.95
Note. It is assumed that setting up time of 200 hrs. is
2,200 200 2,000 unproductive and thus effective hours are

Problem 4.12
The following annual charges are incurred in respect of a machine in a
is almost nil and where work is
done shop where manual labour
by means of five machines of exactly similar type and
specincauio
1. Rent and rates
2.
(proportional to the floor space occupied) for the shop 4,800
3.
Depreciation on each machine 500
Repairs and mantenance for the five machines
4. Power consumed (as 1,000
per meter) @ 5 p. per unit for the 3,000
5. Electric charges for ighting in the shop shop
6. Attendants 540

nere are two

attendants for the five machines and
7. Supervision: they are each paid 7 60 per month
For five
machines in the shop there is one
8. Sundry
supplies such as lubricants, jute andsupervisor whose emoluments are t c0 450
9.
Hire-purchase instalment payable for the
The machine uses 10 units
cotton waste, etc., for the shop
machine (including 7 300 as 1,200

of
power per hour.
Calculate the machine hour rate. interest
(B.ComDelhi)
 C o s tC o n t r o .
439
Overhead

Solatlon dna hours are not given in the problem. These are calculated as follows
- 3,000
Annual working

power consumed
of
T o t a l
a m o u n t

units 5 paise) 50 paise an hour

of power (10
machine (3,000+ 0.50) -6,000 hrs.
Rate
Total working working hours of the 5
1,200 hrs per year
N o . o fm a c h i n e s

hours per
machine (6,000+5)
Working Machine Hour Rate
Computation of
PeT anum Per hour

A a r t i c u l a r s

Standing Charges: 960.00

rates ( 1/5th of 7 4,800) 108.00
talRentand (1/5th of 7 540) 288.00
Lighting charges (1/5th of 7 1,440)
salary for machine 600.00
Attendant's of 3,000)
Supervision per
machine (1/5th 90.00
machine (1/5th of 7 450)
per
(e Sundry supplies 2,046.00
1.70
for standing charges (7 2,046 1,200 hrs.)
Hourly rate 0.42
Variable Charges:
Depreciation (5001,200
hrs.) 0.17
(a) (200 maintenance 1,200 hrs.) 0.50
(b) Repairs andunits paise per unit)
()Power(10 of power 5 2.79
Machine Hour Rate
rate Hire
instalment has not been included
while computing machine hour
Note. Interest on hire-purchase
instalment is also not included
because it is a capital item.
purchase

Problem 4.13 the

indicate department the expenses. Calculate
is having 3 machines. The figures
Adepartment of these machines from the
information given below:
machine hour rate in respect
6,000
12,000 Indirect wages
Depreciation of machine 6,000
Depreciation of building 2,880 Power 800
Repairs to machinery 4,000 Lighting 4,200
Miscellaneous expenditure
Insurance of machinery 800

Machine I
Machine I Machine
2,400
2,400
Direct wages 1,200 20,000
Power units 30,000
10,000
8
Number of workers 24
48
Light points 800 sq. ft. 800 sq. ft.
Space 400 sq. ft. 1,80,000
Cost of Machine 7 3,00,000
1,20,000
300
Hours worked 200
300
(B Com., Madras)
 4.40
Cost Accounting
Solution
Computation of Machine Hour Rate
Basis of Total
STtems Machine Machine
No. Apportionment I II Machine
In
1. Depreciation of machinery Machine value 12,000 6,000 2,400
2. Depreciation of building Space 2,880 576 1,152 3,600
3. Machine repairs Machine value 4,000 2,000 800 1,152
4. Insurance Machine value 800 400 160 1,200
5. Indirect wages Direct wages 6,000 1,200 2,400 240
6,000 3,000 2 400
6. Power Power units 1,000
800 80 2,000
7. |Lighting Light points 240
480
Direct wages 4,200 840 1,680
8. Miscellaneous expenses 1,680
36,680 14,096 9,832
(A) Total 12,752
200 300
(B) Hours worked (B) 300
70.48 32.77
(C) Machine hour rate (A +
B) 42.51
1,200 2,400 2,400
(D) Direct wages 6 8 8
(E) Direct wages per hour (D B) 76.48 4077 50.51
Comprehensive Machine Hour Rate (C+ E)