COST ACCOUNTING – I

Module V : Overheads (PART 1)

Example 1 :
Segregate the semi variable cost given into fixed and variable elements :
Month Output (Units) Semi Variable Cost (Rs.)
January 800 22,000
February 400 16,000
March 1200 28,000
April 1600 34,000
May 2000 40,000
June 1400 31,000
Solve the above example by High and Low points method and Graphical method.

Example 2 :
The following are the figures of output and the total factory expenses taken from the books
of a company :

Month Output (Units) Total Factory Expenses (Rs.)

February 17,500 1,90,000
April 20,000 2,00,000
May 14,000 1,76,000
August 22,500 2,10,000
September 18,000 1,92,000
December 15,000 1,80,000

From the above data you are required to find the fixed and variable costs on the basis of
high and low points method.
Example 3 :
The following data were obtained from the books of S.N. engineering company for the half
year ended 30th September 2016. Prepare a departmental distribution summary.
Production Departments Service Departments
A B C X Y
Direct wages Rs. 70,000 60,000 50,000 10,000 10,000
Direct material Rs. 30,000 25,000 20,000 15,000 10,000
Employees No. 400 300 300 100 100
Motive Power KWH 8,000 6,000 6,000 2,000 3,000
Light points No. 10 15 15 5 5
Assets value Rs. 50,000 30,000 20,000 10,000 10,000
Area occupied Sq. 800 600 600 200 200
yds.

The overheads for 6 months were as under :

Stores overhead 4,000 Depreciation on machinery 60,000
Motive Power 15,000 Repairs and maintenance of 12,000
machinery
Electric lighting 2,000 General overheads 1,00,000
Labour welfare 30,000 Rent and taxes 6,000

The expenses of Department X are to be apportioned in the ratio of 4:3:3 and that of
department Y in proportion to direct wages, to departments A,B and C respectively.

Example 4 :
The following figures are extracted from the books of a manufacturing company:
Particulars Production Departments Service Departments
A B C X Y
Indirect materials 9,500 12,000 2,000 15,000 4,000
Indirect wages 9,000 11,000 3,000 10,000 6,500

Other overheads :
Power and Light – Rs. 60,000
Rent and rates – Rs. 28,000
Insurance on assets – Rs. 10,000
Meal charges – Rs. 30,000
Depreciation p.a. – 6% on capital values

Other information:
Particulars Production Departments Service Departments
A B C X Y
Area in sq. mtrs. 400 400 300 200 100
Capital value of 100000 120000 80000 60000 40000
assets
KWH 4000 4400 1600 1500 500
No. of workers 90 120 30 40 20
Reapportion the cost of Service department to production department equally.
Prepare Departmental Distribution summary with above information.

Example 5 :
In Bata electronics, the following particulars have been collected for the three months
ending December 31, 2016. You are required to prepare overhead distribution summary:

Production Departments Service Departments

A B C D E
Direct wages Rs. 20000 30000 40000 10000 20000
Direct material Rs. 10000 20000 20000 15000 15000
Staff No. 100 150 150 50 50
Electricity KWH 4000 3000 2000 1500 1500
Light points No. 10 16 4 6 4
Assets value Rs. 60,000 40,000 30,000 10,000 10,000
Area occupied Sq. 150 250 50 50 50
yds.

The overheads for the period were as under:

Stores overhead 4,000 Depreciation 150,000
Motive Power 5,500 Repairs and maintenance 30,000
 Electric lighting 1,000 General overheads 60,000
Labour welfare 15,000 Rent and taxes 2,750

Apportion the costs of service department E to production department on the basis of direct
wages and that of Department D in the ratio 5:3:2 to production departments A, B and C
respectively.
Calculate the overhead absorption rates for each of the production departments assuming
that overheads are recovered as a percentage of wages.

RECIPROCAL METHOD:
Example 6 :
The following particulars relate to ADM Manufacturing Company which has three
production departments A, B and C and two service departments X & Y.

Departments
A B C X Y
Total O.H. as per primary 63,000 74,000 28,000 45,000 20,000
distribution

The Company decided to apportion the service department costs on the following
percentages:
A B C X Y
X 40% 30% 20% -- 10%
Y 30% 30% 20% 20% --
Find the total overheads of production departments using Repeated Distribution Method.

Example 7 :
Solve example 4 using simultaneous Equation method

Example 8 :
A company has three production departments and two service departments. Distribution
summary of overheads is as follows:

Production departments Service departments

A Rs. 30,000 1 Rs. 2,340
 B Rs. 20,000 2 Rs. 3,000
C Rs. 10,000
The expenses of the service departments are charged on a percentage basis which is as
follows:

A B C 1 2
1 20% 40% 30% - 10%
2 40% 20% 20% 20% -
Find out the total overheads of production departments using the Repeated Distribution
Method.

Example 9
Solve example 6 using simultaneous Equation method

Example 10:
Modern Manufacturers Ltd. has three Production Departments P1, P2 and P3 and two
service departments S1 and S2, the details of which are as under:
Particulars P1 P2 P3 S1 S2
Direct Wages (Rs.) 30,000 20,000 30,000 15,000 1,950
Machine hours 3070 4475 2419 -- --
Value of machines (Rs.) 60,000 80,000 1,00,000 5,000 5,000
H.P. of machines 60 30 50 10 --
Light points 10 15 20 10 5
Floor space (sq.ft) 2000 2500 3000 2000 500

The following figures extracted from the accounting records are relevant :
Rent and Rates 50,000
General Lighting 6,000
Indirect Wages 19,390
Power 15,000
Depreciation on machines 1,00,000
Other Sundry Expenses 96,950

The expenses of the service departments are allocated as under :

 P1 P2 P3 S1 S2
S1 20% 30% 40% -- 10%
S2 40% 20% 30% 10% --

Find out the total cost of Product X which is processed for manufacture in Departments P1,
P2 and P3 for 4,5, and 3 hours respectively, given that its direct material cost is Rs. 50 and
direct labour cost Rs. 30.

Example 11 :
A & Co. has three production departments – A,B and C and one service department S. The
following particulars are available for one month of 25 working days of 8 hours each. All
departments work all days with full attendance.

Particulars Total in Service Dept Productions Depts.

Rs.
S A B C
Power & Lighting 11,000 2,400 2,000 3,000 3,600
Supervisor’s salary 20,000 20% 30% 30% 20%
Rent 5,000
Welfare 6,000
Others 12,000 2,000 2,000 4,000 4,000
No. of workers 10 30 40 20
Floor area in sq. ft. 500 600 800 600
Service rendered by 50% 30% 20%
service dept to prod
dept
Calculate the Labour Hour Rate of each of the departments A, B and C.