Cost Accounting

FOH
Lecture-17
Main Ahmad Farhan (ACA)
 Reciprocal Appropriation

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

Total = 240,000
 Overhead Absorption Rate.

= Machining Cost = 153,570= 5 /hour

Estimated hours 30,714

Finishing Cost 86,430 = 30 per unit

=
No of units produce 2,881
Blanket Rate
Blanket Rate

Total FOH Cost

=
Direct Cost

240,000
= x 100
200,000

= 120%
High & Low Capacity Method
 Volume variance

Applied FOH cost (capacity attained x Overhead applied rate)

Less Estimated FOH {Fixed FOH cost + (capacity attained x variable
rate)}
Example

Capacity/Activity level Estimated FOH Cost (Rs)

(Machine hours)
4000 40,000

6,000 50,000

10,000 70,000
 Solution
Machine hrs FOH cost

High capacity Level 10,000 70,000

Low capacity Level 4,000 40,000
6,000 30,000

Variable FOH Rate = 30,000 = 5 /hr.

6,000
Calculate Variable & Fixed Cost
Capacity level Estimated FOH Cost Variable FOH Cost Fixed FOH Cost
(Hrs) (Rs)

4000 40,000 4,000 x 5 = 20,000 40,000-20,000 = 20,000

6,000 50,000 6,000 x 5 = 30,000 50,000-30,000 = 20,000

10,000 x 5=50,000 70,000-50,000 = 20,000

10,000 70,000
 Overhead Applied Rate
Normal capacity level = 5000 hrs
Actual FOH cost = Rs.49,300
Actual capacity allowed = 5,800 hrs

Over applied rate = 45,000 = Rs. 9 /hr

5,000
Estimated FOH Cost = 20,000 + (5800 x 5)
20,000 + 29,000 = 49,000
Applied FOH Cost = 5,800 x 9/hr = 52,200
Budgeted Variance & Volume Variance
Volume Variance
Applied FOH cost 52,000
Less Estimated FOH cost 49,000

Unfavorable 32,00

Budget Variance
Estimated FOH cost 49,300
Less Actual FOH cost 49,000

Favorable 300
Total Variance

Volume variance (Unfav) 3200

Budgeted variance (Fav) 300
2900

Applied FOH 52,200

Less Actual FOH 49,300
2900
 Accounting Entries For Actual & Applied FOH
Actual cost
FOH control
Material
Payroll
Expenses
Voucher Payable/creditors

Applied FOH cost

Work in process
FOH Applied
Accounting Entries For Actual & Applied FOH

Closing entry

1- FOH applied
FOH control

2- FOH control 100

FOH applied 80
Under applied 20

3- Under applied 20
FOH control 20
Accounting Entries For Actual & Applied FOH

1- FOH control 100

Over applied 10
FOH applied 110

2- FOH control 10
Over applied 10
 Accounting Entries For Actual & Applied FOH
Charge to cost of goods sold
Cost of goods sold 20
Under applied FOH 20

Charge to entire production

Work in process 7
Finish goods 8
Cost of goods sold 5
Under applied FOH 20

Charge to net income

Income statement 20
Under applied FOH 20
Accounting Entries For Actual & Applied FOH
Charge to cost of goods sold
Over applied FOH 20
Cost of goods sold 20

Charge to entire production

Over applied FOH 20
Work in process 7
Finished goods 8
Cost of goods sold 5

Charge to net income

Over applied FOH 20
Income statement 20