Overhead cost

1. In an engineering factory, the following particulars have been extracted for the year ended 31-12-
2015.
Particulars Production Service
departments departments
A B C X Y
Direct wages 30,000 45,000 60,000 15,000 30,000
Direct materials 15,000 30,000 30,000 22,500 22,500
Staff number 1,500 2,250 2,250 750 750
Electricity (Kwh) 6,000 4,500 3,000 1,500 1,500
Asset value 60,000 40,000 30,000 10,000 10,000
Light points 10 16 4 6 4
Area (square meters) 150 250 50 50 50
The expenses for the period were as follows:
Power 1,100 Depreciation 30,000
Lighting 200 Repairs 6.000
Stores overhead 800 General overheads 12,000
Welfare to staff 3,000 Rent & taxes 550
Apportion the expenses of service dept Y according to direct wages and those of service dept X in
the ratio of 5:3:2 to the production departments.
You are required to prepare an Overhead Distribution summary.
2. The ultra modern company is divided into 4 departments: A, B and C are production departments
and D is a service dept. The actual costs for the Oct 2016 are as follows:
Rent 1,000 Supervision 1,500
Repairs to plant 600 Fire insurance-stock 500
Depreciation of plant 450 Power 900
Light 100 ESI contribution 150
The following information is available in respect of the four departments:
Particulars A B C D
Area sq.ft 1,500 1,100 900 500
No of employees 20 15 10 5
Direct wages 6,000 4,000 3,000 2,000
Value of plant 24,000 18,000 12,000 6,000
Value of stock 15,000 9,000 6,000 -
Apportion the cost to various departments preparing Overhead distribution summary.
3. In Tata electronics, the following particulars have been collected for 3 months ending 31st Dec.
You are required to prepare an overhead distribution summary.
Particulars Production Service
departments departments
A B C X Y
Direct wages 2,000 3,000 4,000 1,000 2,000
Direct materials 1,000 2,000 2,000 1,500 1,500
Staff 100 150 150 50 50
Electricity (Kwh) 4,000 3,000 2,000 1,000 1,000
Asset value 60,000 40,000 30,000 10,000 10,000
Light points 10 16 4 6 4
 Area (square meters) 150 250 50 50 50
The expenses for the period were as follows:
Power 550 Depreciation 15,000
Lighting 100 Repairs 3.000
Stores overhead 400 General overheads 6,000
Amenities to staff 1,500 Rent & taxes 275
Apportion the expenses of service dept Y according to direct wages and those of service dept X in
the ratio of 5:3:2 to the production departments.
4. A firm has 3 production departments A, B and C and 2 service departments X and Y. The
following figures are extracted from the books of the firm.
Indirect wages 600 Depreciation 4,000
Lighting 240 Power 600
Rent 2,000 others 4,000
Other particulars:
Particulars A B C X Y
Floor space (sq. feet) 400 500 600 400 100
Direct wages (Rs) 900 600 900 900 700
Light points 20 30 40 20 10
H.P of machines 75 30 25 10 -
Value of machinery (Rs) 12,000 16,000 20,000 1,000 1,000
Working hours 3,113 2,014 2,033 - -
The expenses of service departments X and Y to be allocated as follows:
A B C X Y
X 20% 30% 40% - 10%
Y 40% 20% 20% 20% -
You are requested to distribute the service department expenses to the production department and
also calculate hourly rate of each production department.
5. A factory has 3 production departments and 2 service departments. The overhead departmental
distribution summary shows the following:
Departments Rs
A 6,50,000
B 6,00,000
C 5,00,000
D 1,20,000
E 1,00,000
The service department expenses are allotted on percentage basis as follows:

Particulars Production Service

departments departments
A B C X Y
Service dept D 30 40 15 - 15
Service dept E 40 30 25 5 -
Show how the expenses of the two service departments are to be charged to production
departments under
 a. Repeated distribution method
b. Simultaneous equation method.
6. A company is having 3 production departments and 2 service departments’ boiler-house and
pump-room. The boiler-house has to depend upon the pump-room for supply of water and pump-
room in turn is dependent on the boiler-house for the supply of steam power for driving the pump.
The expenses incurred by the production departments are:
A: Rs. 4,00,000; B : Rs. 3,50,000 and C : Rs. 2,50,000
The expenses of boiler-house are Rs. 1,17,000 and the pump-room is Rs. 1,50,000.
The expenses of boiler-house and pump-room are apportioned to the production departments on
the following basis:
Particulars A B C Boiler house Pump-room
Expenses of boiler house 20% 40% 30% - 10%
Expenses of pump-room 40% 20% 20% 20% -
Show clearly as to how the expenses of boiler-house and pump-room would be apportioned to
production departments?
7. Indian manufacturing company has 3 production departments A, B and C and 2 service
departments X and Y. the following id= sthe budget for feb. 2015:
Particulars Total A B C X Y
Direct materials - 1,000 2,000 4,000 2,000 1,000
Direct wages - 5,000 2,000 8,000 1,000 2,000
Factory rent 4,000
Power 2,500
Depreciation 1,000
Other overhead 9,000
Additional information is given as follows:
Particulars A B C X Y
Area sq.ft 500 250 500 250 500
Asset value 20,00,000 40,00,000 20,00,000 10,00,000 10,00,000
Machine hours 1,000 2,000 4,000 1,000 1,000
H.P of machines 50 40 20 15 25
A technical assessment for apportionment of the costs of service departments is as under:
Particulars A B C X Y
Service dept X 45% 15% 30% - 10%
Service dept Y 60% 35% - 5% -
You are required to distribute overheads to various departments and re-distribute service
department costs to production dept. Also compute machine hour rates for prodn depts.
8. The following particulars relate to processing machine treating a typical material:
 Cost of machine - Rs. 10,000
 Estimated life – 10 years
 Scrap value – Rs. 1,000
 Yearly working time (50 weeks of 44 hours each) – 2,200 hours
 Machine maintenance – 200 hours p.a.
 Setting up time estimated @ 5% of total productive time and is regarded as productive
time.
 Electricity is 16 units per hour @ 10 paisa per unit
  Chemical required weekly – Rs. 20
 Maintenance cost per year – Rs. 1,200
 Two attendants control the operations of machine together with 6 other machines. Their
combined weekly wages are Rs. 140
 Departmental overhead allocated to this machine per annum – Rs. 2,000.

You are required to calculate the Machine hour rate (MHR).

9. From the data given below, calculate Machine hour rate:

Particulars Per annum
th
Rent of the department (space occupied by machine 1/5 of the dept) 780
Lighting (no of men in the dept 12, 2 men engaged on this machine) 288
Insurance 36
Cotton waste, oil etc 60
Salary of foreman (1/4th of the foreman’s time is occupied by this machine and 6,000
the reminder equally by other two machines)
Cost of the machine is Rs. 9,200 and it has an estimated scrap value of Rs. 200.
It is ascertained from past experience:
 That the machine will work for 1,800 hours per annum
 That it will incur an expenditure of Rs. 1,125 in respect of repairs & maintenance
 That it consumes 5 units of power per hour at the cost of 16 paisa per unit and
 That the working life of the machine will be 1,800 hours.
10. The following annual charges are incurred in respect of a machine in a shop where manual labor
is almost nil and where work is done by means of 5 machines of exactly similar type and
specifications:
Particulars Amount
Rent 7 rates (proportional to the floor space occupied) for the shop 4,800
Depreciation on each machine 500
Repairs & maintenance for 5 machines 1,000
Power consumed (as per meter) @ Rs. 5 p per unit for the shop 3,000
Electric charges for lighting in the shop 540
Sundry supplies such as lubricants, jute & cotton waste for the shop 450
Hire-purchase installment payable for the machine (including Rs. 300 as 1,200
interest)
Attendants:
There are 2 attendants for 5 machines and they are paid Rs. 60 per month.
Supervision:
For 5 machines in the shop there is 1 supervisor whose emoluments are Rs. 250 p.m.
Calculate Machine hour rate.
11. A department is having 3 machines. The figures indicate the dept expenses. Calculate the
machine hour rate in respect of these machines from the information given below:
Depreciation of the machine 1,200 Indirect wages 6,000
Depreciation of building 2,880 Power 6,000
Repairs to machinery 4,000 Lighting 800
Insurance of machinery 800 Miscellaneous exp 4,200
 Particulars Machine I Machine II Machine III
Direct wages Rs. 1,200 Rs. 2,400 Rs. 2,400
Power units 30,000 10,000 20,000
No of workers 4 8 8
Light points 8 24 48
Space 400 sq. ft 800 sq. ft 800 sq. ft
Cost of machine Rs. 3,00,000 Rs. 1,20,000 Rs. 1,80,000
Hours worked 200 300 300

12. Calculate Machine hour rate for recovery of overheads for a machine from the following
information:
 Cost of machine is Rs. 25, 00,000 and estimated salvage value is Rs. 1, 00,000.
 Estimated working life of the machine is 10 years.
 Annual working hours are 3,000 in the factory.
 The machine is required 400 hours p.a for repairs & maintenance.
 Setting-up time of the machine is 156 hours p.a to be treated as productive time.
 Cost of repairs & maintenance for whole working life of the machine is Rs. 3, 50,000.
 Power used is 15 units per hour at a cost of Rs. 5 per unit. No power is consumed during
maintenance and setting-up time
 A chemical required for operating the machine is Rs. 9,880 p.a.
 Wages of an operator is Rs. 4,000 per month. The operator devoted 1/3rd of his time to
the machine.
 Annual insurance charges 2% of cost of machine.
 Light charges for the dept is Rs. 2,500 per month, having 48 points in all, out of which
on;y 8 points are used at this machine.
 Other indirect expenses chargeable to the machine are Rs. 6,500 per month.

13. In a manufacturing company, factory overheads are charged as fixed percentage basis on direct
labor and office overheads are charged on the basis of percentage of factory cost. The following
information are available related to the year ending 31st march 2015:
Particulars Product A Product B
Direct materials 19,000 15,000
Direct labor 15,000 25,000
Sales 60,000 80,000
Profit 25% on cost 25% on sales price
You are required to find out:
a. The % of factory overheads on direct labor
b. The % of office overheads on factory cost.