Cost Management Accounting Factory overhead Lecture15 Mian Ahmad

Cost & Management Accounting Factory overhead Lecture-15 Mian Ahmad Farhan (ACA)

Cost Allocation Cost that can be identified with a specific cost center.

Apportionment Cost that can not be identified with a specific cost centre but must be shared out between two or more center.

Apportionment & Allocation Non Reciprocal Repeated allocation method Algebraic method

Exercise Following data are extracted form the estimates prepared by Plastic Pots & Furniture for the accounting year: - Electricity Bonus Pay Rs. 54, 000 21, 000 Factory Rent 240, 000 Power 747, 000 Depreciation 195, 000

Exercise Costs of service departments are prorated only to production departments: Canteen Cost Apportion on No. of employees ratio. Machine Maintenance in the ratio of 1: 2: 1.

Cost centers are area of a business of which cost can be identified.

Exercise Following further data are also available: Production Department Molding Service Department Machining Finishing Canteen Maintenance Materials (Rs. ) 300, 000 130, 000 45, 000 40, 000 75, 000 Wages (Rs. ) 400, 000 755, 000 95, 000 100, 000 Cost of Assets (Rs. ) 125, 000 250, 000 130, 000 75, 000 Horse Power Hour 700 1, 400 600 88 200 Area in Sq. Yard 180 240 60 60 6, 000 7, 000 2, 000 3, 000 240 300 380 30 80 Metered Units No. of Employees

Solution Plastic Pots & Furniture Work Sheet Apportionment of Factory Overhead Product Deptt. Cost Heads Production Department Service Department Total Canteen Machine Maintenance Materials 40, 000 75, 000 115, 000 Labor Wages 95, 000 100, 000 195, 000 135, 000 175, 000 310, 000 Molding Machining Finishing Allocated Cost (Identified) Electricity 13, 500 15, 750 4, 500 6, 750 54, 000 Bonus Pay 4, 000 7, 550 950 1, 000 21, 000 60, 000 80, 000 20, 000 240, 000 175, 000 350, 000 150, 000 22, 000 50, 000 747, 000 37, 500 75, 000 39, 000 21, 000 22, 500 195, 000 203, 450 275, 250 156, 700 Factory Rent Power Depreciation c/f

solution b/f No. of Employees 48, 828 61, 035 77, 311 203, 450 275, 250 (203, 450) 16, 275 291, 526 Division (1: 2: 1) Total 72, 882 145, 763 72, 881 411, 710 712, 798 442, 792 (291, 526) 156, 700

Apportionment Electricity Basis Canteen 2, 000 Machine Maintenance Metered units Molding Machining Finishing 3, 000 6, 000 7, 000 2 3 6 6 7 2/24 3/24 6/24 7/24 Total 24, 000 24

Apportionment Electricity Molding 54, 000/24*6 13, 500 Machining 54, 000/24*6 13, 500 Finishing 54, 000/24*7 15, 750 Canteen 54, 000/24*2 4, 500 Machine 54, 000/24*3 6, 750 maintenance

Apportionment Bonus Pay Basis Molding 400, 000 Machining 750, 000 Labor wages Finishing 755, 000 Canteen Machine Maintenance 95, 000 100, 000 400 755 95 100 400/2100 755/2100 95/2100 100/2100 Total 2, 100, 000 2100

Apportionment Bonus Pay Molding 21, 000/2100*400 4, 000 Machining 21, 000/2100*750 7, 500 Finishing 21, 000/2100*755 7, 550 Canteen 21, 000/2100*95 950 Machine maintenance 21, 000/2100*100 1, 000

Apportionment Rent Basis Molding 180/720 Machining 180/720 Area Occupied Finishing 240/720 Canteen Machine Maintenance 60 60 60/720 Total 720

Apportionment Rent Molding 240, 000/720*180 60, 000 Machining 240, 000/720*180 60, 000 Finishing 240, 000/720*240 80, 000 Canteen 240, 000/720*60 20, 000 Machine maintenance 240, 000/720*60 20, 000

Apportionment Power Basis Molding Machining 700 1, 400 700/2, 988 1400/2988 Horse Power Finishing 600/2988 Canteen Machine Maintenance 200 88 200/2988 88/2988 Total 2, 988

Apportionment Power Molding 747, 000/2988*700 175, 000 Machining 747, 000/2988*1400 350, 000 Finishing 747, 000/2988*600 150, 000 Canteen 747, 000/2988*200 22, 000 Machine maintenance 747, 000/2988*88 50, 000

Apportionment Deprecation Basis Molding 125, 000 Machining 250, 000 Power Finishing 130, 000 Canteen Machine Maintenance Total 70, 000 75, 000 650, 000 125 250 130 70 75 125/650 250/650 130/650 75/650

Apportionment Deprecation Molding 195, 000/650*125 37, 500 Machining 195, 000/650*250 75, 000 Finishing 195, 000/650*130 39, 000 Canteen 195, 000/650*70 21, 000 Machine maintenance 195, 000/650*75 22, 500

Reciprocal Appropriation (Repeated Appropriation Method 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