Cost Accounting FOH Lecture17 Main Ahmad Farhan ACA

Cost Accounting FOH Lecture-17 Main Ahmad Farhan (ACA)

Reciprocal Appropriation Machining Finishing Maintenance 100, 000 70, 000 40, 000 Air-conditioning Allocated indirect cost 30, 000 240, 000 Machining Finishing Air-conditioning Maintenance Appropriation 60% 15% 25% Air Conditioning 70% 25% 5%

Solution Production Allocate Indirect cost (240, 000) Maintenance Air conditioning Service Machining Finishing Maintenance Air-conditioning 100, 000 70, 000 40, 000 30, 000 24, 000 28, 000 6, 000 10, 000 (40, 000) 2, 000 10, 000 (40, 000) 1, 200 350 300 125 (2000) 25 500 (500) 15 3. 50 (25) 6. 50 5 1. 50 0. 50 (6. 50) 153, 570 86, 430 Total = 240, 000

Overhead Absorption Rate. = Machining Cost Estimated hours Finishing Cost = No of units produce = 153, 570= 5 /hour 30, 714 86, 430 = 30 per unit 2, 881

Blanket Rate

Blanket Rate = = Total FOH Cost Direct Cost 240, 000 200, 000 = 120% x 100

High & Low Capacity Method

Volume variance Applied FOH cost Less Estimated FOH (capacity attained x Overhead applied rate) {Fixed FOH cost + (capacity attained x variable rate)}

Example Capacity/Activity level (Machine hours) Estimated FOH Cost (Rs) 4000 40, 000 6, 000 50, 000 10, 000 70, 000

Solution Machine hrs High capacity Level Low capacity Level Variable FOH Rate 10, 000 4, 000 6, 000 = 30, 000 6, 000 FOH cost 70, 000 40, 000 30, 000 = 5 /hr.

Calculate Variable & Fixed Cost Capacity level (Hrs) Estimated FOH Cost (Rs) 4000 40, 000 6, 000 50, 000 10, 000 70, 000 Variable FOH Cost 4, 000 x 5 = 20, 000 Fixed FOH Cost 40, 000 -20, 000 = 20, 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

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 Applied FOH cost Less Estimated FOH cost Unfavorable Budget Variance Estimated FOH cost Less Actual FOH cost Favorable 52, 000 49, 000 32, 00 49, 300 49, 000 300

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