SOLUTIONS TO ASSIGNMENT PROBLEMS. Problem No. 1. Total Amount (Rs.)

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1 Ph: / OVERHEADS 1 Primary Distribution of Overheads: Item Basis SOLUTIONS TO ASSIGNMENT PROBLEMS Total Amount (Rs.) Problem No. 1 Production Departments Service Departments X (Rs.) Y (Rs.) Z (Rs.) A (Rs.) B (Rs.) Indirect Material Actual 1,25,000 20,000 30,000 45,000 25,000 5,000 Indirect Labour Actual 2,60,000 45,000 50,000 70,000 60,000 35,000 Superintendent s Salary Fuel & Heat Power Rent & Rates Insurance Meal Charges Depreciation Actual 96,000 96,000 Radiator Sections {2:4:6:5:3} Kilowatt Hours {7:8:6:3:0} Area (Sq. ft.) {22:20:15:12:6} Capital Value of Assets {4:6:5:1:2} No. of Employees {6:7:12:3:2} Capital Value of Assets {4:6:5:1:2} 15,000 1,500 3,000 4,500 3,750 2,250 1,80,000 52,500 60,000 45,000 22,500 1,50,000 44,000 40,000 30,000 24,000 12,000 18,000 4,000 6,000 5,000 1,000 2,000 60,000 12,000 14,000 24,000 6,000 4,000 2,70,000 60,000 90,000 75,000 15,000 30,000 Total overheads 11,74,000 2,39,000 2,93,000 3,94,500 1,57,250 90,250 Redistribution of Overheads of Service Department A and B: Total overheads of Service Departments may be distributed using simultaneous equation method. Let, the total overheads of A = a and the total overheads of B= b a = 1,57, b (i) or, 10a b = 15,72,500 [(i) x10] b = 90, a (ii) or, 0.20a + b = 90,250 10a b = 15,72, a + b = 90, a = 16,62,750 a = 1,69,668 Putting the value of a in equation (ii), we get b = 90, x 1,69,668 b = 1,24,184 IPCC_34e_Costing_OverheadsI_Assignment Solutions 26

2 No.1 for CA/CWA & MEC/CEC MASTER MINDS Secondary Distribution of Overheads Production Departments X (Rs.) Y (Rs.) Z (Rs.) Total overhead as per primary distribution 2,39,000 2,93,000 3,94,500 Service Department A (80% of 1,69,668) 50,900 50,900 33,934 Service Department B (90% of 1,24,184) 31,046 49,674 31,046 Total 3,20,946 3,93,574 4,59,480 Problem No. 2 Primary over head distribution method Basis Total P 1 P 2 S 1 S 2 Direct material Given 30,000 10,000 20,000 Direct labour Given 30,000 20,000 10,000 Over Heads Given 1,80,000 80,000 50,000 30,000 20,000 Power Department Cost Variable Actual KWH(13:23:10.25:10) 84,375 19,500 34,500 15,375 15,000 Fixed Normal capacity (20:35:12.5:17.5) 37,500 8,824 15,441 5,514 7,721 Total OH 1,08,324 99,941 80,889 72,721 Secondary over head distribution method(simultaneous equation method) Basis P 1 P 2 S 1 S 2 Total OH As computed 1,08,324 99,941 80,889 72,721 Apportionment of S 1 OH 5:4::1 48,691 38,952 (97,381) 9,738 Apportionment of S 2 OH 3:1:1: 49,475 16,492 16,492 (82459) Total OH 2,06,490 1,55,385 Let S 1 be total OH of service dept. 1 S 2 be total OH of service dept. 2 S 1 = 80,889+20% S 2 (1) S 2 = 72,721+10% S 1 (2) By substituting equation (2) in equation (1) S 1 = 80,889+20% (72,721+10% S 1 ) = 80, , S S 1 = 95,433 S 1 = 97,381 By substituting equation (1) in equation (2) S 2 = 72,721+10% (97,381) = 72,721 +9,738 = 82,459 P 1 P 2 a) Total OH 2,06,490 1,55,385 b) Labour hrs 19,000(95,000/5) 12,500(50,000/4) c) OHRR(a/b) Rs per LH Rs per LH IPCC_34e_Costing_OverheadsI_Assignment Solutions 27

3 Ph: /26 WNI: Problem No. 3 a) Statement showing Distribution of OH s Production Dept s Service Dept s Machine shops Packing General Plant Stores Indirect labour Maintenance material Misc. Supplies Supervisor s Salary Cost & Payroll salary ,000 80,000 11, Total allocated OH s Add: Approved OH (WNI) Production Dept s Service Dept s Item of cost Basis Machine shops Packing General Plant Stores Power H.P hour (7 : 1: 2) Rent Floor space (5 : 2 : 1:4) 30,000 12, Fuel & heat Radiator Sec (3 :6 : 2:4) Insurance Investment (10 : 3 : 1 : 2) Taxed Investment (10 : 3 : 1: 2) Dep. Investment b) Let a be total OH of General Plant Let b be total OH of stores a = b 1 b = By solving the above 2 equations a = ( a) a = a a = b = x = Secondary Distribution statement Total Machine shop Packing OH s as per primary OH s Dis. Statement General Plant Stores IPCC_34e_Costing_OverheadsI_Assignment Solutions 28

4 No.1 for CA/CWA & MEC/CEC MASTER MINDS (i) Cost Driver Allocation percentage Percent used: Problem No. 4 Factory office dept.: Snowmobile engine Maintenance dept: Snowmobile engine 80% 20% 75% 25% (ii) Secondary Overhead distribution statement: (Direct method): Basis Snow mobile engine dept department Factory office Maintenance Total Overhead Given 6,00,000 17,00,000 3,00,000 2,40,000 Apportionment of Factory office Overhead Apportionment of maintenance dept Overhead 80% ; 20% 2,40,000 60,000 (3,00,000) 75% ; 25% 1,80,000 60,000 (2,40,000) Total Overhead 10,20,000 18,20,000 (iii) Cost Driver Allocation percentage: Factory office dept.: Snowmobile engine Maintenance dept Maintenance dept: Snowmobile engine Percent used 72% 18% 10% 75% 25% (iv) Secondary Overhead distribution statement: (Step ladder method): Basis Snow mobile engine dept department Factory office Maintenance Total Overhead Given 6,00,000 17,00,000 3,00,000 2,40,000 Apportionment of 72 :18 :10 2,16,000 54,000 (3,00,000) 30,000 Factory office Overhead 8,16,000 17,54,000 2,70,000 Apportionment of 75%: 25% 2,02,500 67,500 (2,70,000) maintenance dept Overhead Total Overhead 10,18,500 18,21,500 IPCC_34e_Costing_OverheadsI_Assignment Solutions 29

5 Ph: /26 Problem No. 5 i. 9,00,000 Fixed overhead rate = = 6 1,50,000 VOH rate = 4 Single OH rate/ total OH rate = 10 OH allocation for cutting dept. = 6,00,000 OH allocation for welding dept. = 4,00,000 10,00,000 ii. Overhead allocation on dual rate: FOH VOH Total OH Fixed / variable rate 6 4 Cutting dept. 5,40,000(90,000 X 6) 2,40,000(60,000 X 4) 7,80,000 Welding dept. 3,60,000(60,000 X 6) 1,60,000(40,000 X 4) 5,20,000 Total 9,00,000 4,00,000 13,00,000 iii. Overhead allocation on dual rate based on A.H: FOH VOH Total OH Rate per hour 6 4 Cutting dept.(60,000 hrs) 3,60,000 2,40,000 6,00,000 Welding dept.(40,000 hrs) 2,40,000 1,60,000 4,00,000 Total 6,00,000 4,00,000 10,00,000 iv. Comments: Under dual rate method, under (iii) and single rate method under (i), the allocation of fixed cost of practical capacity of plant over each department are based on single rate. The major advantage of this approach is that the user departments are allocated fixed capacity costs only for the capacity used. The unused capacity cost Rs. 3,00,000 (Rs. 9,00,000 Rs. 6,00,000) will not be allocated to the user departments. This highlights the cost of unused capacity. Under (ii) fixed cost of capacity are allocated to operating departments on the basis of practical capacity, so all fixed costs are allocated and there is no unused capacity identified with the power plant. Problem No. 6 A B C D Sales 3,00,000 5,00,000 2,50,000 4,50,000 ( ) Variable Cost: Cost 2,00,000 4,50,000 2,10,000 2,25,000 4% of sales 12,000 20,000 10,000 18,000 Packing wages & 20,000 30,000 15,000 35, / parcel Rs.10/ invoice ,000 6,000 12,000 Contribution 60,000 (14,000) 9,000 1,60,000 ( ) Fixed cost: Rent & Insurance (5 : 4 : 8 : 3) Depreciation (1 : 1.5 : 0.75 : 1.75) Salesmen s salaries & Expenses 7,500 6,000 12,000 4,500 2,000 3,000 1,500 3,500 12,000 20,000 10,000 18,000 IPCC_34e_Costing_OverheadsI_Assignment Solutions 30

6 No.1 for CA/CWA & MEC/CEC MASTER MINDS (3.5 : 2.5 : 4.5) Administrative wages & 10,000 17,500 7,500 15,000 salaries (80 : 140 : 60 : 120) Profit / Loss 28,500 60,500 22,000 11,9000 % of Profit/ Loss on sales 9.5% 12.1% 8.8% 26.4% a) Primary OH s Distribution Statement Problem No. 7 Basis of apportion Total Production Dept Service Dept M N O P Q Less rent Floor space (6:5:8:2:4) Power & fuel H.P of machine working hours (93:144:72) Factory sup Working hours salary (31:40:30) Electricity Light point (21:26:16:9:8) Dep. On Value of machinery machinery Dep. On Floor space Building Payroll No: a/ee expenses Canteen No: o/ee expenses ESI & PF contr. Direct wages Let P be the OH s of service Dept. P Let Q be the OH s of service Dept. Q P = Q Q = P P = ( P) P = P P = Q = x = Statement showing OHRR M N O Allocated OH s P Approtiant Q Approtiant Total Oh s (a) No of hours (b) OHRR (a/b) IPCC_34e_Costing_OverheadsI_Assignment Solutions 31

7 Ph: /26 Working notes: Problem No Computation of total cost of jobs 1,07,325 Total cost of Job 1102 when 8% is the profit on cost = x100 = Rs.99, ,57,920 Total cost of job 1108 when 12% is the profit on cost = x100 = Rs.1,41, Factory overheads = F% of direct wages Selling & Administrative overheads = A% of factory cost (i) Computation of rates of factory overheads and selling and administration overheads to be charged. Jobs Cost Sheet Job 1102 (Rs.) Job 1108(Rs.) Direct materials 37,500 54,000 Direct wages 30,000 42,000 Prime cost 67,500 96,000 Add: Factory overheads 30,000F 42,000F Factory cost (Refer to Working note 2) (67, ,000 F) (96, ,000 F) Add: Selling and Administration Overheads(Refer to Working note 2) (67, ,000 F) A (96, ,000 F) A Total cost (67, ,000 F) (1+ A) (96, ,000F) 1+A) Since the total cost of jobs 1102 and 1108 are equal to Rs.99,375 and Rs.1,41,000 respectively, therefore we have the following equations (Refer to working note 1) (67, ,000 F) (1 + A) = 99,375 (1) (96, ,000 F) (1 + A) = 1,41,000 (2) or 67, ,000 F + 67,500 A + 30,000 FA = 99,375 96, ,000 F + 96,000 A + 42,000 FA = 1,41,000 or 30,000 F + 67,500 A + 30,000 FA = 31,875 (3) 42,000 F + 96,000 A + 42,000 FA = 45,000 (4) On solving (3) and (4) we get : A = 0.25 and F = 0.40 Hence A = 25% and F = 40% (ii) Selling price of the new order: (Rs.) Direct materials 64,000 Direct wages 50,000 Prime cost 1,14,000 Factory overheads (40% Rs.50,000) 20,000 Factory cost 1,34,000 Selling & Admn. Overheads (25% Rs.1,34,000) 33,500 Total cost 1,67,500 If selling price of new order is Rs.100 then Profit is Rs.20 and Cost is Rs.80 1,67,500 Hence selling price of the new order = x100 = Rs.2,09, IPCC_34e_Costing_OverheadsI_Assignment Solutions 32

8 No.1 for CA/CWA & MEC/CEC MASTER MINDS THE END IPCC_34e_Costing_OverheadsI_Assignment Solutions 33

SOLUTIONS TO ASSIGNMENT PROBLEMS. Problem No. 1. Total Amount (Rs.)

6. OVERHEADS - 1 Primary Distribution of s: Item SOLUTIONS TO ASSIGNMENT PROBLEMS Total Amount (Rs.) Problem No. 1 Production Departments Service Departments X (Rs.) Y (Rs.) Z (Rs.) A (Rs.) B (Rs.) Indirect