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Overheads Distribution
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Overheads (Distribution) Particulars Unit A B C D E

Electricity Kwh. 4,000 3,000 2,000 1,000 1,000
Illustration 5.1: Following figures have been extracted from the accounts of a
Light Points Nos. 10 16 4 6 4
manu
Asset Value Rs. 60,000 40,000 30,000 10,000 10,000
facturing concern for the month of December, 2016 :
Area Occupied Sq. Yds. 150 250 50 50 50
Particulars Depatment Rs.
Indirect Materials : The expenses for the period were :
Production Deptt. X 950 Particulars Rs. Particulars Rs.
Production Deptt. Y 1,200 Motive Power 550 Depreciation 15,000
Production Deptt. Z 200 Lighting Power 100 Repairs & Maintenance 3,000
Maintenance Deptt. P 1,500 Stores Overhead 400 General Overheads 6,000
Stores Deptt. Q 400 Amenities to Staff 1,500 Rent & Taxes 275
Indirect Wages : Apportion the expenses of service department E proportionate to ‘Direct Wages’
Production Deptt. X 900 and those of service department D in the ratio of 5 : 3 : 2 to departments A, B, and
Production Deptt. Y 1,100 C respectively.
Production Deptt. Z 300 [Total Overheads for Departments - A: Rs.12,443; B: Rs.10,523; C: Rs.9,859
Maintenance Deptt. P 1,000 Overhead Absorption Rate for Departments - A: 622.15%; B: 350.77%; C: 246.47%]
Stores Deptt. Q 650
Power and Light ..... 6,000 llustration 5.3: From the following information work out the production hour rate of
Rent and Rates ..... 2,800 recovery of overheads in Departments A, B, and C.
Insurance on assets ..... 1,000 Total Production Dept . Service
Meal Charges ..... 3,000 Dept.
Depreciation @ 6% p.a. on capital value of assets. Particulars
Rs. A B C D E
From the following additional information, calculate the share of overheads of
each Production Department : Rent 1,000 200 400 150 150 100
Particulars X Y Z P Q Electricity 200 50 80 30 20 20
Area (sq. feet) 4,000 4,000 3,000 2,000 1,000 Fire Insurance 400 80 160 60 60 40
Capital value of assets (Rs.) 1,00,000 1,20,000 80,000 60,000 40,000 Plant Depreciation 4,000 1,000 1,500 1,000 100 200
Kilowatt hours 4,000 4,400 1,600 1,500 500 Transport 400 50 50 50 100 150
Number of employees 90 120 30 40 20 Estimated Working Hours 1,000 2,500 1,800
Direct labour hours 3,600 3,200 2,200 - - Expenses of the Service departments D and E are apportioned as under :
Number of material requisitions 900 600 500 - - A B C D E
[X: Rs.9,000; Y: Rs.9,600; Z: Rs.4,400] D: 30% 40% 20% - 10%
E: 10% 20% 50% 20% -
Illustration 5.2: In a light engineering factory, the following particulars have been [Total Overheads for Departments - A: Rs.1,663; B: Rs.2,606; C: Rs.1,731
collected for the three monthly period ending 31st December, 2016. Compute the Overhead rate per hour for Departments - A: Rs.1.67; B: Rs.1.04; C: Rs.0.96]
departmental overhead rates for each of the production department assuming
that overheads are recovered as a percentage of direct wages. Illustration 5.6: Calculate the Machine Hour Rate for machine X from the following
Production Deptts. Service Deptts. data :
Particulars Unit A B C D E Cost of Machine : Rs.16,000
Estimated Scrap Value : Rs.1,000
Direct Wages Rs. 2,000 3,000 4,000 1,000 2,000 Effective Working Life : 10,000 hours
Direct Materials Rs. 1,000 2,000 2,000 1,500 1,500 Running Time per 4 weeks : 160 hours
Staff Nos. 100 150 150 50 50
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Average Cost of Repairs charges per 4 weeks : Rs.120 Administrative expenses allocated to the machine (p.a.) : Rs.4,000
S tanding C harges allocated to M achine for 4 weeks : Rs.4 Repairs and maintenance : 75% of depreciation
Power used by machine (4 units per Hour) : 50 Paise per Hour Workshop supervisor’s salary (per month) : Rs.3,000
[Rs.3.00] Estimated working time per year : 50 weeks of 40 hours
Setting up time which is regarded as productive time (p.a.) :
Illustration-5.6 (New Book): A machine costs Rs.90,000 and is deemed to have 200 hours
a scrap value of 5% at the end of its effective life (19 years). Ordinarily the machine Effective life of the machine : 10 years
is expected to run for 2,400 hours per annum but it is estimated that 150 hours will The machine occupies 1/4 th area of the workshop. The supervisor is expected to
be lost for normal repairs and maintenance and further 750 hours will be lost due devote 1/3rd of his time in supervising the machine.
to staggering. The other details in respect of the machine shop are [Rs.18.47]
(i) Wages of two Operators for five machines in shop : Rs.8,000 per year
(ii) Rent and rates of the shop : Rs.4,800 per year Illustration.5.9: A production department of a manufacturing company has three
(iii) General Lighting of the shop : Rs.5,400 per month different machines, for each of which it is desired to established machine hour
(iv) Insurance ill emium of the shop : Rs.225 per quarter rates. The overhead expenses for this Department for the year ending 31st
(v) Cost of repairs and maintenance per machine : Rs.250 per month December, 2014 are :
(vi) Shop supervisor’s salary : Rs.2,500 per month Consumable Stores : Rs. Rs.
(vii) Power consumption of machine per hour 20 units : Rs.10 per 10 units Machine No. 1 300
(viii) Other factory overheads attributable to the shop : Rs.4,000 per annum Machine No. 2 500
The Supervisor is expected to devote one-fifth of his time for supervising the Machine No. 3 600 1,400
machine. Compute machine hour rate from the above details. Repairs and Maintenance :
[Rs.32.08] Machine No. 1 400
Machine No. 2 600
Illustration 5.7: From the following particulars compute Machine Hour Rate : Machine No. 3 800 1,800
Cost of machine : Rs.1,14,800 Power 720
Installation charges : Rs.5,400 Heat and Light 400
Anticipated life of machine : 10 years Rent and Rates 2,400
Residual value at the end of 10 years : Rs.5,000 Insurance of Buildings 200
Rent and rates per annum : Rs.12,000 Insurance of Machines 480
Insurance of the machine p.a. : Rs.3,000 Depreciation of Machines 7,200
Repairs and maintenance p.a. : Rs.8,640 Supervision 4,400
Consumable stores p.a. : Rs.1,200 General Charges 1,100
Total production services p.a. : Rs.1,080 Additional operating information is available as follows :
Power cost is 5 units per working hour : 40 paise per unit Particualrs Effective Area Occupied Book Value Working
Setting-up time (Non-productive, per annum) : 400 Hours H.P (Sq. ft ) of Machines Hours
There are 300 working days of eight hours in a year Machine No. 1 5 100 12,000 10,000
[Rs.20.72]
Machine No. 2 10 500 20,000 25,000
llustration 5.8: From the following information, compute machine hour rate : Machine No. 3 15 400 16,000 20,000
Cost of the machine : Rs.44,000 You are required to calculate a Machine Hour Rate for each of the three machines.
Scrap value : Rs.4,000 Show clearly the basis of apportionment that you use.
Rent for the workshop(per annum) : Rs.25,000 [Total Overheads for Machines- (1): Rs.3,099; (2): Rs.9,063; (3): Rs.7,938
General lighting for the workshop (per month) : Rs.160 Machine Hour Rate for Machines - (1): Rs.0.31; (2): Rs.0.36; (3): Rs.0.40]
Power consumption 20 units per hour : Rs.20 per 100 units
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Illustration 5.10: A manufacturing company uses two identical large and four Illustration 5.12: The following particulars refer to process used in the treatment
identical small machines. Each large machine occupies one quarter of the of a material subsequently incorporated in a component forming part of an electrical
workshop and fully employed three workers; each small machine occupies half appliance :
the space of a large machine and fully employs two workers.The workers are (a) The original cost of the machine used (purchased in June 2016) was
paid by piece work. Rs.10,000. Its estimated life is 10 years, the estimated scrap value at the end
Each of the six machines is estimated to work 1,440 hours per year, while the of its life is Rs.1,000, and the estimated working time per year (50 weeks of
effective working life is taken as 12,000 working hours for each large machine 44 hours) is 2,200 hours of which machine maintenance, etc. is estimated to
and 9,000 working hours for each small machine. Large machines cost Rs.20,000 take up 200 hours. No other loss of working time is expected. Setting up time
each, and small machines Rs.4,000 each. Scrap values are Rs.4,000 and Rs.100 estimated at 100 hours, is regarded as productive time. (Bank holidays are to
respectively. be ignored).
Repairs, maintenance and oil are estimated to cost for each large machine (b) Electricity used by the machine during production is 16 units per hour at a
Rs.4,000 and each small machine Rs.1,200, during its effective life. cost of 9 paise per unit. No current is taken during maintenance or setting up.
Power consumption costs 5 paise per unit, and amounts for a large machine to 20 (c) The machine requires a chemical solution which is replaced at the end of
units per hour, and for a small machine to 2 units per hour. each week at a cost of Rs.20 each time.
The manager is paid Rs.4,800 a year, and the workshop supervision occupies (d) The estimated cost of maintenance per year is Rs.1,200.
half his time which is divided equally among the six machines. (e) Two attendants control the operation of the machine together with five other
Details of other expense are : identical machines. Their combined weekly wages, insurance and the
Rent and rates of the workshop (p.a.) : Rs.6,400 employer’s contributions to holiday pay amount to Rs.120.
Annual Lighting (to be apportioned in the ratio of workers employed) : Rs.1,820 (f) Department and general works overheads allocated to this machine for the
Taking a period of three month as a basis, calculate the machine hour rate for a year 2016-2017 amount to Rs.2,000.
large You are required to calculate the machine hour rate necessary to provide for
machine and a small machine respectively. recoupment of the costs of operating the machine.
[Large Machine: Rs.4.32; Small Machine: Rs.1.67] [Rs.4.49]

Illustration 5.11: The following annual charges are incurred in respect of a Illustration 5.13: Continuing the information given in the Illustration 5.12, compute
machine in a shop where manual labour is almost nil and where work is done by the machine hour rate in each of the following cases :
means of five machines exactly of similar type and specification. Rs. (a) If setting up time is taken as productive time and the current is taken during
1. Annual Rent and Rates (proportional to the floor space occupied) for the Shop : setting up.
4,800 (b) If setting up time is taken as unproductive time but current is taken during
2. Annual Depreciation on each machine : 500 setting up.
3. Annual Repairs and maintenance for the five machines : 1,000 (c) If setting up time is taken as unproductive time and no current is taken during
4. Power consumed (as per meter) @ 5 p. per unit for the shop : 3,000 setting up.
5. Annual Electric charges for light in the shop : 540 [(a): Rs.4.49; (b): Rs.4.73; (c): Rs.4.65]
6. There are two attendants for the five machines, each paid (p.m.) : 60
7. For the five machines in the Shop there is one supervisor paid (p.m.) : Illustration 5.14: A machine costs Rs.90,000 and is deemed to have a scrap
250 value of 5% at the end of its effective life (19 years). Ordinarily the machine is
8. Annual Sundry supplies such Lubricants, Cotton Waste etc. for the Shop : expected to run for 2,400 hours per annum but it is estimated that 150 hours will
450 9. Hire be lost for normal repairs and maintenance and further 750 hours will be lost due
Purchase Instalments for the machine (including Rs.300 as interest) : 1,200 to staggering. The other details in respect of the machine shop are :
The Machine uses 10 units of power per hour. Calculate the machine hour rate (a) Wages, bonus and provident fund contribution of each of
for the machine for the year. tw o operators (each operator is in charge of two machines) ... Rs. 6,000 (p.a.)
[Rs.2.79] (b) Rent and rates of the shop ... Rs.3,000 (p.a.)
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(c) General Lighting of the shop ... Rs.250 (p.m.) Factory Overheads not traceable directly to both departments amount to Rs.20,000
(d) Insurance premium for the machine ... Rs.200 (per quarter) and are to be shared equally between the two departments. There are 5 machines
(e) Cost of repairs and maintenance per machine ... Rs.250 (p.m.) of similar size and specifications. Each machine works 40 hours in a week. Each
(f) Shop supervisor’s salary ... Rs.500 (p.m.) machine remains idle on account of repairs and holidays, etc. for 80 hours
(g) Power consumption of the machine per hour 20 units ... annually.
Rs.10 (per 100 units) [B. Com. (Pass) Delhi] [(i): 70%; (ii): Rs.10 per hour]
(h) Other factory overheads attributable to the shop ... Rs.4,000 (p.a.)
There are four identical machines in the shop. The Supervisor is expected to Illustration-5.17 (New Book): Following particulars relate to the production
devote 1/5th of his time for supervising the machine. Compute a comprehensive department of a factory for the month of June 2018 :
machine hour rate from the above details. Direct Materials Rs.80,000
[B. Com. (Pass) Delhi 2005 adapted] [Rs.12.00] Direct wages Rs.72,000
Overhead charges allocated to the department Rs.90,000
Illustration 5.15: Compute Machine Hour Rate from the following information : Hours of Machine operation Rs.25,000
(i) The machine room will work on 90% capacity throughout the year and that a Direct labour hours worked Rs.20,000
further breakdown of 10% is reasonable. Cost Data of a particular work order carried out in the above Department during
(ii) There are 3 days holiday at Deepawali, 2 days at Holi and 2 days at Christmas, June are given below :
exclusive of Sundays. The factory works 8 hours a day and 4 hurs on Material used Rs.8,000 Direct wages Rs.6,250
Saturdays. Labour hours booked 3,300 Machine hours booked 2,400
(iii) Number of machines (each of same type) are 40. Show through a statement of Factory Cost, what would be the factory cost of the
(iv) Expenses per annum : Rs. work order under the following methods of charging overheads :
Power for workshop 3,120 (i) Direct Labour Cost Rate, (ii) Machine Hour Rate, (iii) Direct Labour Hours rate.
Lubricanting oil for machine 66 [(i) Rs.22,890; (ii) Rs.29,100; (iii) Rs.22,063]
Light for machine 640
Repairs to machines for workshop 1,446 Illustration 5.18: The following information relates to the activities of a production
Salaries to Foreman for machine 1,200 department for a certain period in a factory :
Depreciation on all machines 785.60 Materials used ..... Rs.72,000
[B.Com. (Pass) Delhi 2006] [Rs.0.112] Direct wages ..... Rs.60,000
Overheads chargeable to the department ..... Rs.48,000
Illustration 5.16: Cost Centre in a factory furnishes the following information : Hours of Machine operation ..... 20,000
(a) Working hours per week : 30 hours Labour hours worked ..... 24,000
(b) Number of identical machines installed in the centre : 5 On one order carried out in the department during the period, the relevant data
(c) Budgeted Factory Overheads for a 4 weekly period for the Cost Centre : Rs.6,000 were:
(d) Direct Labour Cost for a 4 weekly period for the Cost Centre : Rs.15,000 Material used ..... Rs.4,000
Calculate Factory Overhead Rate based on: (i) Machine Hours, (ii) Labour Cost Labour Hours ..... 1,650
Direct wages ..... Rs.3,300
[B. Com. (Pass) Delhi] [(i): Rs.10 per hour; (ii): 40%] Machine Hours ..... 1,200
Prepare a comparative statement of cost of this order by using the following
Illustration 5.17: Nadira Enterprises has two departments A and B. Work is done methods of recovery of overheads :
manually in department A and through machines in department B. You are required (i) Direct Labour Hour Rate Method
to compute : (i) Direct labour cost percentage; and (ii) Machine hour rate, from the (ii) Direct Labour Cost Rate Method
annual data given below : (iii) Machine Hour Rate Method
Direct Wages : Rs.1,00,000 [(i): Rs.10,600; (ii): Rs.9,940; (iii): Rs.10,180
Factory Overheads allocated to Department A : Rs.60,000 Labour Hour Rate: Rs.2; Labour Cost Rate: 80%; Machine Hour Rate: Rs.2.40]
Factory Overheads allocated to Department B : Rs.90,000
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Illustration 5.19: The following information relates to the activities of a production Illustration 5.21: The following information for the month of April is extracted from
Department of a factory for a month : the cost records of Break and Buy Ltd. which specialises in the manufacture of
Direct Material Consumed ..... Rs.1,80,000 automobile spares. The parts are manufactured in Department A and assembled
Direct Wages ..... Rs.1,50,000 in Department B.
Factory Overheads Chargeable to the department ..... Rs.1,26,000 Total Deptt. A Deptt. B
Labour Hours Worked ..... 12,000 hours Direct Material (Rs.) 65,000 50,000 15,000
Machine Hours Worked ..... 10,000 hours Direct Labour (Rs.) 90,000 40,000 50,000
The relevant data relating to one order carried out in the department during the Factory Rent (Rs.) 15,000 ? ?
period are as given ahead : Supervision (Rs.) 6,000 2,500 3,500
Material Consumed ..... Rs.30,000 Depreciation on Machines (Rs.) 5,000 ? ?
Direct Wages ..... Rs.24,750 Power (Rs.) 4,000 ? ?
Labour Hours Worked ..... 1,650 hours Repairs to Machines (Rs.) 2,000 1,600 400
Machine Hours worked ..... 1,200 hours Indirect Labour (Rs.) 4,000 2,000 2,000
Compute Factory Overhead Rates of recovery and the amount of overhead Direct Labour worked (Hours) 80,000 30,000 50,000
Chargeable to the order by the following methods : Machine worked (Hours) 30,000 25,000 5,000
(i) Direct Material Cost Percentage (iii) Labour Hour Rate Book Value of Machines (Rs.) 50,000 40,000 10,000
(ii) Direct Labour Cost Percentage (iv) Machine Hour Rate Machine Hours Power (H.P.) 400 353 47
[(i): Rs.21,000; (ii): Rs.20,790; (iii): Rs.17,325; (iv): Rs.15,120 Floor Space (Square Feet) 20,000 10,000 10,000
Material Cost Rate: 70%; Labour Hour Rate: Rs.10.50 The Prime Cost of Batch ‘B-401’ has been booked as under :
Labour Cost Rate: 84%; Machine Hour Rate: Rs.12.60] Total Deptt. A Deptt.B
Materials (Rs.) 3,200 2,700 500
Illustration 5.20: Meerut manufacturing company makes several product lines Labour (Rs.) 7,500 3,000 4,500
which are processed through three production departments : X, Y and Z.
Direct Labour Hours worked on batch ‘B-401’ were 2,500 hours in Department A
The information concerning the relevant data for a year is as follows :
and 5,000 hours in Department B. Machine Hours worked in this batch were
Factory Direct Labour Direct Labour
1,250 hours in Deptt. A and 600 hours in Deptt. B
Overhead (Rs.) Hours Cost (Rs.)
Allocate overhead expenditure and calculate the cost of each unit in batch ‘B-
Department X 1,24,000 80,000 1,60,000
401’ which consists of 1,000 units.
Department Y 2,30,000 1,15,000 2,41,000
[Machine related costs: A-Rs.9,130; B-Rs.1,870; Machine Hr. rate: A-Rs.0.365; B-
Department Z 5,46,000 1,05,000 1,99,500
Rs.0.374
Production records at the end of the year indicated the following for the product Labour related costs: A-Rs.12,0000; B-Rs.13,000; Labour Hr. rate: A-Rs.0.40; B-Rs.0.26
line Total Batch Cost: Rs.13,681]
‘Krish’ for 20,000 unit produced :
Deptt. X Deptt. Y Deptt. Z Illustration 5.22: An engineering firm has three departments. The budgeted
Prime Cost (Rs.) 45,000 10,500 59,500 expenses for the ensuing year are :
Direct Labour (Hours) 10,000 5,000 30,000 Deptt. A Deptt. B Deptt. C
You are required to : Materials (Rs.) 10,000 10,000 7,970
(a) Calculate the departmental and plant-wise, over-head rates based on direct Direct Wages (Rs.) 13,664 8,784 7,930
labour hours Direct Expenses (Rs.) 176 228 90
(b) Compute the cost of ‘Krish’ line for the year by using : Works Expenses (Rs.) 9,760 6,588 6,110
(i) Plant-wise rate, and (ii) department rates Administration Expenses (Rs.) 2,688 2,560 1,989
[(B. Com. (H), Delhi] [Composite plant overhead rate per hour : Rs.3.00 Direct Labour (Hours) 7,808 5,856 4,888
Departmental overhead rate per hour : X - Rs.1.55; Y - Rs.2.00; Z - Rs.5.20] Works expenses are charged to output at a man-hour rate and administration
expenses are charged as a percentage on works cost. What price should be
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charged to Job No. 61, to include a profit of 10% on cost, on which the direct costs Overheads actually incurred ..... Rs. 1,50,000
are as follows: Overheads absorbed ..... Rs. 1,00,000
Deptt. A Deptt. B Deptt. C Goods sold ..... 12,000 units
Materials (Rs.) 420 300 240 Stock of Finished Goods ..... 11,000 units
Direct Wages (Rs.) 450 300 335 Stock of Work-in-progress ..... 10,000 units
Direct Expenses (Rs.) 10 - - (20% complete)
Direct Labour (Hours) 240 216 200 Unabsorbed overheads were due to rising price levels. You are required to explain
[Labour Hour. Rate: A- Rs.1.25; B- Rs.1.125; C- Rs.1.25; Total Job Cost: Rs.3,156 how would under absorbed overheads be treated in cost accounts?
Administration Expense Rate: A- 8%; B- 10%; C- 9%; Selling Price: Rs.3,472] [Total under absorbed overheads: Rs.50,000
Allocated to COGS: Rs.24,000; Finished Goods: Rs.22,000; WIP: Rs.4,000]
Illustration 5.23: The works cost of a certain article is Rs.400 and the selling
price is Rs.800. The following direct selling and distribution expenses were Illustration 5.26: A cost centre in a factory furnishes the following working
incurred : conditions:
Freight and Carriage ..... Rs.40 Normal working hours in a week ..... 40 Hours
Insurance ..... Rs.10 Numbers of machines ..... 15
Commission ..... Rs.60 Number of hours weekly lost on maintenance (each machine) .....
Packing Cases ..... Rs.10 4 Hours
The estimated fixed selling and distribution expenses for the year were Rs.30,000 Estimated annual overheads ..... Rs.1,55,520
and the estimated value of sales for the year was Rs.1,50,000. Estimated direct wages rate (per hour) ..... Rs.3
You are required to set out the final cost of the article using the method of Number of weeks worked per year ..... 48
percentage on sales to recoup fixed selling and distribution expenses. Actual results in respect of a 4 week period are:
[Fixed Selling Expense: 20% of sales; Total Cost: Rs.680; Profit: Rs.120] Overheads incurred ..... Rs.15,000
Wages incurred ..... Rs.7,000
Illustration 5.24: A company is producing three types of products A, B and C. Machine hours produced ..... 2,200 Hours
The sales territory of the company is divided into three zones named X, Y and Z. You are required to calculate :
The estimated sales for the year 2017 are as under : (a) Overhead rate per machine hour
Product Zone-X Zone-Y Zone-Z (b) Amount of under or over absorption of both wages and overheads
(Rs.) (Rs.) (Rs.) [(a): Rs.6; (b): Wages over absorbed: Rs.200; Overheads under absorbed: Rs.1,800]
A 50,000 20,000 -
B 30,000 - 80,000
C - 70,000 40,000 PRACTICAL PROBLEMS
The budgeted advertising cost is as under :
Product Zone-X Zone-Y Zone-Z Total Q-1: The following data were obtained from the books of a Light Engineering
(Rs.) (Rs.) (Rs.) (Rs.) Company for half year ended 30th September, 2000. Calculate the departmental
Local cost 3,200 4,500 4,200 11,900 overhead rates for each of the production departments assuming that the overheads
General Cost - - - 5,800 are recovered as a percentage of direct wages :
You are required to find the percentage of advertising cost on sales for each area Production Dept. Service Dept.
and product showing how you will present the statement to management.
Particulars Unit A B C X Y
[Areawise = X: 6%; Y: 7%; Z: 5.5%; Productwise = A: 6.34%; B: 5.64%; C: 6.45%]
Direct Wages Rs. 7,000 6,000 5,00 1,000 1,000
Illustration 5.25: X Ltd. which absorbs overheads at a pre determined rate, Direct Materials Rs. 3,000 2,500 2,000 1,500 1,000
provides you the following information : Employees Nos. 200 150 150 50 50
Electricity KWH 8,000 6,000 6,000 2,000 3,000
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Light Points Nos. 10 15 15 5 5 Tool Room 11,100

Assets Value Rs. 50,000 30,000 20,000 10,000 10,000 Stores 4,500
Area occupied Sq. Yrd. 800 600 600 200 200 Factory Office 6,600 68,400
Factory Rent 30,000
The expenses for six months were :
Insurance 6,000
Stores Overhead 400 Depreciation 6,000
Depreciation 10% 30,000
Motive Power 1,500 Repairs & Maintenance 1,200
Power 27,000
Electric Lighting 200 General Overheads 10,000
Light and Heat 12,000
Labour Welfare 3,000 Rent & Taxes 600
Total 2,19,600
Apportion the expenses of Department X in the ratio of 4 : 3 : 3 and that of Department Further information regarding the operations are given below :
Y in proportion to Direct Wages, to departments A, B and C respectively.
[Total Overhead: (A) Rs.8,340; (B) Rs.6,220; (C) Rs.5,100; (X) Rs.4,100; (Y) Department Area in Book Value Effective Direct Direct Machinery
Rs.3,640 Sq. Mtr. of Machine H.P. Labour Labour Cost Hours
Overhead Rates : (A) 162.8%; (B) 144.4%; (C) 146.8%] (Rs.) (Rs.) (Hours) (Rs.)

Q-2: The details given below pertain to the Power Service Department of Superior Production:
Papers Ltd. Shop No. 1 1,000 75,000 90 3,00,000 90,000 1,60,000
Horse Power Hours Producing Departments Service Shop No. 2 750 35,000 90 3,00 000 60,000 2,40,000
Departments A B X Shop No. 3 1,500 30,000 - 2,00,000 50,000 -
Y Service:
Tool Room 500 45,000 20 - 50,000 -
Needed at capacity production 10,000 20,000 12,000 8,000 Stores 750 7,500 - - - -
Used during the month work 8,000 13,000 7,000 6,000 Factory Office 500 7,500 - - - -
During March, the expenses of operating the Power Service Department amounted 5,000 3,00,000 200 8,00,000 2,50,000 40,000
to Rs.9,30,000; of this amount Rs.2,50,000 were considered to be fixed costs.
Show what amount of the operating expenses should be allocated to each You are required to prepare an ‘Overhead Analysis Sheet’ for the departments of
producing and service department. Explain the method used and state its Reliable Co. for the year showing the basis of apportionment.
advantages. [Hint. Overheads of Factory office Rs.1,35,000 apportioned to shops on the basis of direct
[A : 2,10,000; B :Rs.3,60,000; X : 2,00,000; Y : 1,60,000] labour cost , overheads of stores Rs.1,35,000 according to Indirect Material and those of
Tool Room Rs.31,200 according to book value of machines]
Q-3: Following particulars have been extracted from the books of Reliable
Company: Q-4: The New Enterprises Ltd. has three production Departments A, B and C and
Indirect Materials : Rs. Rs. two Service Departments D and E. The following figures are extracted from the
Shop No. 1 12,000 records of company:
Shop No. 2 18,000 Rs.
Shop No. 3 6,000 Rent and Rates ..... 5,000
Tool Room 3,600 General lighting ..... 600
Stores 4,800 Indirect Wages ..... 1,500
Factory Office 1,800 46,200 Power ..... 1,500
Indirect wages : Depreciation of Machinery ..... 10,000
Shop No. 1 12,600 Sundries ..... 10,000
Shop No. 2 17,600 The following further details are available :
Shop No. 3 16,000
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Particulars Total A B C D E Floor Space Occupied :

Machining Department ..... 60 per cent
Floor space (sq. ft.) 10,000 2,000 2,500 3,000 2,000 500
Assembling Department ..... 30 per cent
Light points 60 10 15 20 10 5
Factory Office ..... 10 per cent
Direct Wages (Rs.) 10,000 3,000 2,000 3,000 1,500 500
Factory Overheads traceable to Departments :
H.P of Machines 150 60 30 50 10 -
Machining Department ..... Rs. 92,000
Value of Machinery (Rs.) 2,50,000 60,000 80,000 1,00,000 5,000 5,000
Assembling Department ..... Rs. 53,000
Working hours - 6,226 4,028 4,056 - -
Factory Office ..... Rs. 41,000
The expenses of D and E are allocated as follows : Factory Overheads not traceable to Departments :
A B C D E Factory Rent, Taxes and Insurance ..... Rs. 10,000
Department ‘D’ 20% 30% 40% - 10% It has been decided that the costs of Factory Office, which is a service department,
Department ‘E’ 40% 20% 30% 10% - can be equitably apportioned to other departments on a direct labour cost basis.
What is the total cost of an article if its raw material cost is Rs.50, labour cost The Machining Department operates on a 40 hour a week. There are five machines
Rs.30 and it passes through Department A, B and C for 4 hours, 5 hours and 3 in the Department and every machine has remained idle for 280 hours in 2016 for
hours respectively. vocations, holidays, repairs etc. Calculate overhead absorption rate based on
[Total Overheads of D: Rs.4,831 and E: Rs.2,048; machine hours for Machining Department and overhead absorption rate based
Overhead Rates- A: Rs.1.50; B: Rs.2.30; C: Rs.2.95] on direct labour cost for Assembling Department.
[Overheads- Machining Deptt.: Rs.1,26,000; Assembling Deptt.: Rs.70,000
Q-5: The Production Department of a factory furnishes the following information Machine Hours Rate: Rs.14; Direct Labour Cost Rate: 140%
for the month of October : Machine hours per machine: 1,800]
Materials used (Rs.) ..... 54,000
Direct wages (Rs.) ..... 45,000 Q-7: Late in 2016, a company set up a factory overhead absorption rate of 84 per
Labour hours worked ..... 36,000 cent of direct labour cost based on the following budget :
Hours of machine operation ..... 30,000 Factory Overhead Costs ..... Rs. 75,600
Overheads chargeable to the department (Rs.) ..... 36,000 Direct Labour Hours ..... 60,000
For an order executed by the department during the period, the relevant information Labour Rate per hour ..... Rs. 1.50
was as under : Direct Labour Cost ..... Rs. 90,000
Materials used (Rs.) ..... 6,000 Early in 2017, the method of operations was changed. The new operations require
Direct wages (Rs.) ..... 3,200 labour that will be paid Rs.1.75 per hour, the operating time would be reduced by
Labour hours worked ..... 3,200 20 per cent. What steps should be taken by the company’s cost accountant to
Hours of machine operation ..... 2,400 meet the situation ? Give the necessary calculations also. ,
Calculate the overhead charges chargeable to the job by the following methods [Factory overheads to direct labour cost rate- 2016: 84%; 2017: 90%]
:
(i) Direct materials costs percentage rate Q-8: A machine is purchased for cash at Rs.9,200. Its working life is estimated to
(ii) Labour hour rate be 18,000 hours after which its scrap value is estimated at Rs.200. It is assumed
(iii) Machine hour rate from past experience that :
[(i) Rs.4,000, (ii) Rs.3,200, (iii) Rs.2,880] (i) The machine will work for 1,800 hours annually
(ii) The repair charges will be Rs. 1,080 during the whole period of life of the
Q-6: The following information relating to the production operations of Nalanda machine
Fabricators for 2016 at standard capacity has been collected : (iii) The power consumption will be 5 units per hour at 6 paise per unit
Direct Labour Cost : (a) Rent of department (Machine 1/5th) Rs.780
Machining ..... Rs. 1,00,000 (b) Light (12 points in the department-2 points engaged in the machine) Rs.288
Assembling ..... Rs. 50,000 (c) Foreman’s salary (1/4th of his time is occupied in the machine) Rs.6,000
(17) (18)

(d) Insurance premium for machinery Rs.36 Depreciation of Machines ..... ..... 700
(e) Cotton waste Rs.60 Room Service ..... ..... 60
Find out the machine hour rate on the basis of above data for allocation of the General Charges ..... ..... 90
works expenses to all jobs for which the machine is used. Additional information :
[Rs. 1.86] Working Hours Area (sq. feet) Book Value (Rs.)
A Machine 10,000 100 12,000
Q-9: From the following information relating to the machine ‘Shylock’ installed in B Machine 25,000 500 20,000
a factory, calculate the machine hour rate : [Re.0.30]
(a) Purchase price of the machine with nil scrap value is Rs.90,000
(b) Installation and incidental charges incurred on the machine is Rs.10,000 Q-12: The following expenses were incurred annually in respect of a factory
(c) Life of the machine is 10 years of 2,000 working hours per annum having 8 machines of similar nature : Rs.
(d) Repair charges are 50% of depreciation (i) Lighting for the Factory ..... 800
(e) Machine consumes 10 units of electric power per hour @ 10 paise per unit (ii) Supervision ..... 900
(f) Oil expenses are at the rate of Rs.2 per day of eight hours (iii) Repairs ..... 2,400
(g) Consumable stores are at the rate of Rs.10 per day of eight hours (iv) Rent and Rates ..... 4,000
(h) Two workers are engaged on the machine, paid at the rate of Rs.4 each per (v) Attendants : (Two workers looking after eight machines)
day of eight hours paid @ Rs.60 per month each worker
[Rs.11] (vi) Interest paid on loan ..... 2,000
(vii) Power consumed for the shop (10 paise per unit) ..... 9,600
Q-10: Calculate the machine hour rate to recover the overhead expenses (viii) Depreciation per machine ..... 300
indicated below : (ix) Sundry supplies for factory ..... 240
Electric Power (per hour) ..... 75 paise (x) Each machine consumes 10 units of power in an hour.
Steam (per hour) ..... 10 paise Calculate Machine Hour Rate if a machine runs for 1,200 hours in a year.
Water (per hour) ..... 2 paise [Rs.2.27]
Repairs (per annum) ..... Rs. 530
Rent (per annum) ..... Rs.270 Q-13: Calculate the Machine Hour Rate from the following details :
Running hours (per annum) ..... 2,000 1. Bought off machinery ..... Rs.45,000
Original cost ..... Rs.12,500 2. Installation charges ..... Rs.5,000
Book value ..... Rs. 2,870 3. Life of machine ..... 5 years
Present replacement value ..... Rs. 11,500 4. Working hours per year ..... 2,500
Depreciation (Straigh Line Method) ..... 71/2 % per annum 5. Repair charges ..... 75% of depreciation
[Rs.1.74] 6. Electric power consumed (15 paise per unit) ..... 10 units per hour
[Hint: Depreciation to be charged on original cost] 7. Lubricant oil (per day of 8 hours) ..... Rs.4
8. Consumable stores (per day of 8 hours) ..... Rs.10
Q-11: Calculate Machine Hour Rate of A Machine : Rs. 9. Wages of machine operator (per day of 8 hours) ..... Rs.8
Consumable Stores (for A Machine) 600 [Rs11.25]
Consumable Stores (for B Machine) ..... ..... 1,200
Repairs (for A Machine) ..... ..... 800 Q-14: From the following information compute machine hour rate in respect of
Repairs (for B Machine) ..... ..... 1,200 ‘Skylark’ machine for the month of May 2016 :
Heat and Light ..... ..... 360 Cost of the machine ..... Rs. 3,00,000
Rent ..... ..... 1,200 Expenses on installation and freight charges ..... Rs.25,000
Insurance of Building ..... ..... 4,800 Estimated scrap value at the end ..... Rs.25,000
Insurance of Machines ..... ..... 800 Insurance charges allocated to the machine (per month) ..... Rs.480
(19) (20)

Effective working life of the machine ..... 24,000 hours Estimated scrap value after the expiry of its life (15 years) ..... 5,000
Hours worked during the month ..... 240 hours Rent and rates for the shop (per month) ..... 200
Repairs during the effective life of the machine ..... Rs.24,000 General lighting for the shop (per month) ..... 300
Power consumed by the machine is 20 units per hour at a cost of 25 paise per Insurance premium for the machine (per annum) ..... 960
unit. Additional charges at 5 paise per unit are payable on the total units consumed Repairs and maintenance expenses (per annum) ..... 1,000
if the same exceeds the basic consumption of 2,000 units per month. Power consumption : 10 units per hour
[Rs.21.50] Rate of power per 100 units ..... 20
Working time per annum : 2,200 hours (includes setting up time of 200 hours)
Q-15: The following particulars relate to a new machine : Rs. Shop supervisor’s salary (per month) ..... 600
Purchase price ..... 4,00,000 The machine occupies 1/4 th of the total area of the shop. The supervisor is expected
Installation expenses ..... 1,00,000 to devote 1/5 th of his time for supervising the machine.
Rent per quarter ..... 3,750 [Rs.7.95]
General lighting for the total area (per month) ..... 1,000 [Asumed setting up time as unproductive time and no current consumed during setting up]
Foreman’s salary (per annum) ..... 30,000
Insurance premium for the machine (per annum) ..... 3,000 Q-16 (New Book): Calculate machine hour rate from the following details given
Estimated repairs for the machine (per annum) ..... 5,000 by ABC Ltd. for its production department :
Consumable stores (per annum) ..... 4,000 Cost of Machinery Rs.4,50,000
Power consumption per hour is 2 units (Rs.50 per 100 units) Installation Charges Rs.50,000
The estimated life of the machine is 10 years and scrap value at the end of 10 th Life of Machine 5 years
year is Rs.1,00,000. The machine is expected to run 20,000 hours in its lifetime. Working Hours per year 2,500
The machine occupies 25% of total area. The foreman devotes 1/6 th his time for Repair Charges 75% of Depreciation
the machine. Calculate machine hour rate for the machine. Electric Power consumed 10 Units per hour @ Rs.3 per unit
[Rs.32.87] Lubricating Oil Rs.40 per day of 8 hours
Consumable Stores Rs.80 per day of 8 hours
Q-15 (New Book): The following are the annual expenses incurred in a shop Wages of Machine Operator Rs.200 per day of 8 hours
where work is done by ten identical machines : [Rs.140]
(i) Rent and rates for the shop Rs.9,600
(ii) Depreciation for ten machines Rs.50,000 Q-17: Calculate the machine-hour-rate from the following details provided by a
(iii) Repairs and maintenance for each machine Rs.2,000 Production Department of ABC Ltd. :
(iv) Power consumed @ Rs.5 per unit for the shop Rs.12,00,000 (1) Bought of machinery ..... Rs.4,50,000
(v) Electric charges for lights in the shop Rs.10,800 (2) Installation charges ..... Rs.50,000
(vi) There are four attendants for ten machines and each of them is paid Rs.1,600 (3) Life of machine ..... 5 years
per month (4) Working hours per year ..... 2,500
(vii) Supervision — For ten machines in the shop, there are two supervisors (5) Repairs charges ..... 75% of Depreciation
whose total emoluments are Rs.2,500 per month (6) Electric power consumed : 10 units (per hour) ..... Rs.3 (per unit)
(viii) Sundry supplies — lubricants, cotton waste etc. for the shop Rs.9,000 (7) Lubricating oil (per day of 8 hours) ..... Rs.40
(ix) Interest paid on bank loan taken for the purchase of machines Rs.50,000 (8) Consumable stores (per day of 8 hours) ..... Rs.80
(x) A machine uses 10 units of power per hour. (9) Wages of machine operator (per day of 8 hours) ..... Rs.200
Calculate the Machine Hour Rate for a machine for the year. [B.Com. (Pass), Delhi 2012]
[Rs.58.59] [Rs.140]

Q-16: Compute the machine hour rate from the following data : Rs. Q-18: The following is a schedule of expenses allocated to three machines A, B
Cost of machine ..... 1,00,000 and C :
Installation charges ..... 10,000
(21) (22)

A B C Depreciation ..... 23,000

Rs. Rs. Rs. Power ..... 5,400
Rent and Rates 75 59 120 Insurance ..... 2,400
Insurance 2 1 4 Lighting ..... 800
Power 128 146 273 Share or service section expenses apportioned to :
Supervision 40 30 60 Machine Shop No. 1 ..... 600
Organisation (Wages of clerks and foreman etc.) 10 7 15 Machine Shop No. 2 ..... 600
Stores Service 20 29 46 Machine Shop No. 3 ..... 400
Tool Setters 93 78 129 Operating Data
Tool Makers 194 145 214 Machine Machine Floor area Value of Plant Horse Power
Oil and Sundries 8 12 7 shop hours (sq. ft.) and Machinery of motors
Depreciation and Repairs 69 100 83 1 1,000 1,000 Rs.1,00,000 50
Total 639 607 951 2 3,000 2,000 Rs.80,000 30
In addition to this expense, there Was the expenses of operating an overhead 3 2,000 1,000 Rs.60,000 20
crane, which was necessary to bring heavy materials to the machine. This (a) Calculate machine hour rates of overhead absorption for each of the machine
expenses was as follows : Rs. shops.
Power consumed by the crane 227 (b) Calculate the cost of job which passes through the three shops in a ‘straight
Wages of crane driver 216 line’. The direct materials and direct labour costs of the job are Rs.200 and
Repairs 28 Rs.40 respectively. The machine hours utilised are as follows :
Depreciation 49 Machine Shop No. 1 2 hours
Oil and sundries 5 Machine Shop No. 2 5 hours
Sundry charges allocated to the crane 45 Machine Shop No. 3 4 hours
Total 570 [Machine No.1: Rs.13.70; Machine No.2: Rs.10.37; Machine No.3: Rs. 8.80;
The number of hours the machines were in use during the period represented by Cost of the job: Rs.354.45]
the above expenditure was as follows :
A B C Q-20 : Compute the machine hour rate from the following data :
With use of crane 160 130 480 (a) Total machine cost to be depreciated ..... Rs.2,30,000
Without use of crane 428 577 - (b) Life of machine ..... 10 years
Total 588 707 480 (c) Depreciation method ..... Straight line
Calculate the machine hour rate applicable to each machine, distinguishing (d) Departmental overheads (annual)
between the hours when the crane was used and the hours in which it was not. Rent ..... Rs.50,000
[A :Rs.1.09; B: Rs.0.86; C: Rs.1.98; Crane: Rs.0.74] Heat and Light ..... Rs.20,000
Supervision ..... Rs.1,30,000
Q-19: The following figures have been extracted from the budgets of a (e) Departmental area .....70,000 Square feet
manufacturing concern for the year ending 31.12.2016. Rs. Machine area ..... 2,500 Square feet
Salaries ..... 24,000 (f) Number of machines in the department ..... 26
Lubricants and indirect materials : (g) Annual cost of reserve equipment for the machines ..... Rs.1,500
Machine Shop No. 1 ..... 400 (h) Hours run on production ..... 1,800
Machine Shop No. 2 ..... 600 (i) Hours for setting and adjusting ..... 200
Machine Shop No. 3 ..... 200 (j) Power cost per hour of running time ..... Re.0.50
Repairs (k) Labour cost (per hour) ..... Rs.6
Machine Shop No. 1 ..... 1,000 (a) When setting and adjusting, full time attention
Machine Shop No. 2 ..... 2,000 (b) When machine is producing, one man can look after three machines
Machine Shop No. 3 ..... 1,000 [Machine Hour Rate Rs. 20.14]
(23) (24)

Q-21: Following is the information about the production and amount of overhead Q-23: Woolcombers Limited is engaged in job work that varies with the nature of
expenses of a seasonal factory : customer’s orders. During the last week of March 2016, it completed a job with
Month Direct Labour (Hrs.) Direct Wages (Rs.) Factory overheads (Rs.) the following details regarding its factory cost :
January 1,050 600 300 Raw materials ..... Rs.4,000
February 1,100 700 350 Direct Labour ..... Rs.20,000
March 1,600 750 400 Labour Hours ..... 8000
April 1,800 750 450 Machine Hours ..... 3,800
May 2,500 1,250 550 The information obtained from its annual budget is given below :
June 3,050 1,600 600 Direct Labour cost ..... Rs.6,00,000
July 2,500 1,300 550 Direct Labour hours ..... 2,00,000
August 1,750 750 500 Machine hours ..... 90,000
September 1,500 750 400 Direct material ..... Rs.2,00,000
October 1,250 600 350 Direct labour ..... Rs.6,00,000
November 1,000 500 300 Indirect labour ..... Rs.1,00,000
December 900 450 250 Electric Power ..... Rs.40,000
Total 20,000 10,000 5,000 Machine maintenance and repair ..... Rs.15,200
Calculate the overhead absorption rates on the basis of : Municipal taxes ..... Rs.22,800
(i) Direct labour hours Factory supplies ..... Rs.6,000
(ii) Direct labour wages Factory heat and light ..... Rs.4,000
(iii) Find out the cost of Job No.101 applying the both rates worked out above. Depreciation and insurance of Factory building ..... Rs.1,30,000
The direct costs of the job are as follows : Depreciation and insurance of Machinery ..... Rs.4,02,000
Direct materials ..... Rs.40 It is required to :
Direct labour hours ..... Rs.20 (i) Prepare a Cost Sheet showing the Factory Cost of the job completed during
Direct labour wages ..... Rs.20 the last week of March 2000 using the method, that you consider appropriate
[(i) Re.0.25; (ii) 50%; (iii) Rs.65 and Rs.70] on the basis of information available, for the absorption of its share of factory
overheads.
Q-22: A machine shop contains four newly purchased machines, each occupying (ii) Explain the reasons for the selection of the method of absorption.
practically equal amount of space and costing respectively : [B.Com Hons.] [Cost of the job: Rs.52,800; Direct Labour Hour Rate: Rs.3.60 per hour]
A:- Rs.20,000, B:- Rs.25,000, C:- Rs.30,000 and D:- Rs.40,000.
The following are the expenses per annum of the machine shop : Rs. Q-24: XYZ Toy Ltd. has three manufacturing departments A, B and C one
Rent ..... 10,000 service department ‘S’. The following particulars are available for one month of
Rates and water ..... 4,250 25 working days of 8 hours each day. All departments work all days with full
Light and heat ..... 3,150 attendance :
Power A ..... 5,100
Expenses Total Service Production Production
Power B ..... 5,000
Production
Power C ..... 12,000
Deptt. ‘S’ Deptt. ‘A’ Deptt. ‘B’ Deptt. ‘C’
Power D ..... 14,500
Administration ..... 9,500 Power & Lighting (Rs.) 1,100 240 200 300 360
Running expenses, works sundries, repairs etc. ..... 20,000 Supervisor’s Salary (Rs.) 2,000 - - - -
Calculate a machine hour rate for each machine assuming it works for 45 hour a Rent (Rs.) 500 - - - -
week and 50 weeks per year, 80% utilisation and the life of machine being 10 Welfare (Rs.) 600 - - - -
years without any scrap value. Others (Rs.) 1,200 200 200 400 400
[Standing charges per machine: Rs.3.74 Supervisor’s Salary 100% 20% 30% 30% 20%
Variable charges: A—Rs.5.78; B—Rs.6.58; C—Rs.11.23; D—Rs.14.14]
(25) (26)

Number of workers 100 10 30 40 20 Assuming that all goods produced have been sold, calculate the following:
Floor area in sq. ft. 2500 500 600 800 600 (i) Calculate factory overheads incurred and factory overheads absorbed
‘S’ share to other Deptt. - - 50% 30% 20% (ii) State how will you deal with over-absorbed or under-absorbed factory
overheads
Calculate the ‘Labour Hour Rate’ of each of the departments A, B and C.
[B. Com (Hons) Delhi, adapted]
[A: 30 paise; B: 25 paise; C: 40 paise]
[Actual Factory Overheads: Rs.1,35,000; Absorbed Factory Overheads: Rs.1,25,000
Positive Supplementary Overhead Rate: Re.0.20 per labour hour]
Q-25: A match factory sells its goods in four district Zones South, North, East and
West. You have been given the following particulars in respect of each Zone :
Q-27: Your company uses a historical cost system and applies overheads on the
Net sales No. of Average Advertising Stock held Transportation basis of predetermined rate. The following are the figures from the Trial Balance
Zones
(in lakhs) Salesmen Mileage budget at a time charges as at 30.9.2016 :
covered (%) (in lakhs) Manufacturing overheads ..... Rs.4,26,544 (Debit)
Rs. Rs. Rs. Manufacturing overheads applied ..... Rs.3,65,904 (Credit)
South 5.00 30 3,000 25% 2.00 25% Work-in-process ..... Rs.1,41,480 (Debit)
North 13.50 50 4,500 30% 5.00 50% Finished Goods Stock ..... Rs.2,30,732 (Debit)
East 3.50 20 2,700 25% 1.50 15% Cost of Goods Sold ..... Rs.8,40,588 (Debit)
West 3.00 25 2.400 20% 1.50 10% Give two methods for the disposal of the under absorbed overheads and show
the profit implications of each method.
The following are the expenses of the previous year : Rs.
[C.A. Inter and B. Com. (Hons.), adapted]
Sales manager and his establishment 62,000
[Unabsorbed Overheads: Rs.60,640
Travelling representatives’s salaries 36,000
In case of Supplementary Rate Method, profit will get reduced by Rs.60,650
Travelling representatives’ travelling allowances 12,000
In case of carrying over of unabsorbed, overheads the profit will remain unaffected]
Advertising 24,000
Godown rent at out-station :
Q-28: The Factory Overhead Costs of four Production Departments of a company
South Zone 7,500
engaged in executing job orders for the accounting year 2016-17 are :
North Zone 10,500
Department A ..... Rs.19,500
East Zone 4,800
Department B ..... Rs.4,500
West Zone 3,600 26,400
Department C ..... Rs.4,000
Insurance on inventories at out-stations 12,200
Department D ..... Rs.2,500
Commission on sales @ 2 1/2% 62,600
Overheads have been absorbed as per the following rates/methods for different
Transportation charges outward 36,000
departments :
You are required to compute selling overhead rates as a percentage of sales
Department A @ Rs.1.50 per machine hour for 14000 hours
[South 12.2%, North 9.6%, East 12 2% and West 12.5%]
Department B @Rs.1.30 per Direct Labour hour for 3000 hours
Department C @Rs. 80% of Direct Labour cost of Rs.6,000
Q-26: Sankalp Industries absorbs factory overhead costs at Rs.2.50 per direct
Department D @ Rs.2 per piece for 950 pieces.
labour hour. Both opening and closing balances of work-in-process and finished
Find out the amount of under or over absorbed overheads departmentwise.
goods inventories are Zero. The following data are available for the year 2016
[B.Com. (Pass), Delhi 2010]
and the fact that all goods produced have been sold.
[Over Absorbed Overheads — A: Rs.1,500; C: Rs.800
Direct Labour Hours Used ..... 50,000
Under Absorbed Overheads — B: Rs.600; D: Rs.600]
Direct Labour Cost ..... Rs.1,00,000
Indirect Labour Cost ..... Rs.25,000
Indirect Materials Cost ..... Rs.10,000
Depreciation of Plant and Equipment ..... Rs.50,000
Miscellaneous Factory overheads ..... Rs.50,000
••••••••••••••••••••••
(27) (28)

Overheads (General) output is 1,000, 1,500 and 2,000 units of the products of X, Y and Z respectively
(Note: This chapter should be attempted after Budgetary Control) and that there is a scope for doubling the production of the remaining products if
any one line is discontinued.
Illustration 4.1: A factory incurred the following expenditure in 2016: [Product ‘Y’ should be discontinued]
Particulars Rs.
Direct Materials 50,000
Direct Wages 30,000
Factory Overheads : ••••••••••••••••••••••
Fixed 15,000
Variable 1 0,000 25,000
1,05,000
In 2017 it is expected that :
(a) There will be an increase in output on account of 50% more workers.
(b) Efficiency will come down by 10% on account of employment of new workers.
(c) There will be increase of 20% in fixed overheads.
(d) Cost of Direct Materials will come down by 5%.
Variable overheads vary with number of workers employed. Draw up the budget
for 2017.
[Incease in output: 35%; Total Cost: Rs.1,42,125]

Illustration 4.2: A manufacturing organisation produces and markets three distinct

products. X, Y and Z. An analysis of the cost per unit of production of which is
given below :
Elements of Cost X Y Z
Material 20 16 12
Labour 14 10 6
Overheads 32 24 26
Total Cost 66 50 44
Margin 24 10 6
Selling Price 90 60 50
Percentage of profit on cost 36.36 20 13.64
On calling of further information, you see that fixed and variable overheads for
the three products are as follows :
Products Total Overheads Fixed Overheads Variable Overheads
X 32 16 16
Y 24 12 12
Z 26 16 10
The management decided to close down production of the least profitable of the
three products so that they can concentrate on the remaining two products. The
above analysis of cost is put up with a recommendation to discontinue product Z.
Do you agree with the suggestion ? Proceed on the assumption that present