Cost and management accounting concept cost analysis and control
|
Item of expenses
|
Basis for
apportionment
|
|
1.
Power and jobbing
repairs, overtime premium.
2.
Material
handling expenses, internal transport, store service expenses, insurance or
stock
3.
Workers
insurance, contribution to provident fund, workers compensation, indirect
wages.
4.
Welfare and
recreation expenses, canteen expenses medical expenses, time keeping
supervision.
5.
Lighting,
heating, rent, rates, taxes, maintenance of buildings, a/c’s, fire precaution
services.
6.
Rate, taxes,
depreciation, maintenance, insurance charges of building
7.
Lighting
expenses, light coins, power or kilo watt power
|
1.
Direct
allocation
2.
Value of
materials passing through cost centers.
3.
Direct wages
4.
Number of
workers
5.
Floor area
occupied
6.
Capital value
or asset value
7.
House power or
kilowatt power
|
1)
The
modern company is divided into 4 dept A,B,C & D. ABC are the production
depts. And D is the service dept. the actual cost for a period are as follows.
Rent
1000
Repairs
to plant 600
Dept
of plant 450
Employees
liabilities 150
For
insurance
Fire
insurance in 500
Respect
of stock
Supervision 1500
Power 900
Light
120
The following information is
available in respect of 4 departments
|
Item
|
A
|
B
|
C
|
D
|
|
Floor area(sq mts)
|
1500
|
1100
|
900
|
500
|
|
No. Of employee
|
20
|
150
|
10
|
5
|
|
Total wages
|
6000
|
4000
|
3000
|
2000
|
|
Value of plant
|
84000
|
18000
|
12000
|
6000
|
|
Value of stock
|
15000
|
9000
|
6000
|
----
|
|
HP of plant
|
24
|
18
|
12
|
6
|
A portion the 2 various depts. On the
most equitable basis
Working notes:
1500:1100:900:500 24000:18000:12000:6000
15:11:9:5 = 40 24:18:12:6
4:3:2:1
|
Item
|
Basis of apportionment
|
Total amount
|
A
|
B
|
C
|
D
|
|
Rent
|
Floor area(15:11:9:5)
|
1000
|
375
|
275
|
225
|
125
|
|
Repairs of plant
|
Value of plant(4:3:2:1)
|
600
|
240
|
180
|
120
|
60
|
|
Depreciation of plant
|
Value of plant(4:3:2:1)
|
450
|
180
|
135
|
90
|
45
|
|
Employee liabilities
|
Direct wages(6:4:3:2)
|
150
|
60
|
40
|
30
|
20
|
|
Fire insurance
|
Value of stock(5:3:2)
|
500
|
250
|
150
|
100
|
--
|
|
Supervision
|
Number of employees(4:3:2:1)
|
1500
|
600
|
450
|
300
|
250
|
|
Power
|
HP of plant(4:3:2:1)
|
900
|
360
|
270
|
180
|
90
|
|
Light
|
Floor area (15:11:9:5)
|
120
|
45
|
33
|
27
|
15
|
Total 5220 2110
1533 1072 505
Methods of reapportionment:
Secondary
distribution of overheads
Direct re-distribution step-distribution reciprocal services
Method
method method
Simultaneous eqn repeated distribution trail
& error
Method method
method
1.
In
light engineering company the following particulars have been collected from
the 3months period ending on 31st march 1999.
|
Item
|
Production
dept
A B C
|
Service
dept
D E
|
|
Direct
wages
Direct
materials
Staff
(no)
Electricity
(k.wt)
Light
coins
Asset
value
Area
occupied (S.M)
|
2000
3000 4000
1000
2000 2000
100
150 150
4000
3000 2000
10
16 4
60000
40000 30000
150
250 50
|
1000 2000
1500 1500
50 50
1000 1000
6 4
10000 10000
50 50
|
The expanses for period where, motive
power 550/- lighting power 100/- stores
overhead 400/- facilities to staff 1500/- dep 15000/- general O.H 6000/-
repairs & maintenance 3000/- rent & rates 275/- apportion of 3:3:4 and
those the service dept ‘D’ is the ratio 3:1:1 to depts. A,B & C
respectively.
|
Items
|
Basis
for apportionment
|
Total
amount
|
A
|
B
|
C
|
D
|
E
|
|
Direct
material
Direct
wages
Motive
power
Lighting
Power
Stores
overheads
Facilities
to staff
Depreciation
General
OH’s
Repairs
& maintenance
Rent
& rates
Dept
& exp
Dep.D
exp
|
Direct
allocation
Direct
allocation
Electricity
(4:3:2:1)
Light
coins (5:8:2:3:2)
Direct
material (2:4:4:3:2)
Staff
no (2:3:3:1:1)
Asset
value (6:4:3:1:1)
Direct
wages (2:3:4:1:3)
Asset
value (6:4:3:1:1)
Area
occupies (3:5:1:1:1)
|
--
--
550
100
400
1500
15000
6000
3000
275
6010
4515
|
--
--
200
25
50
300
6000
1000
1200
75
1803
2709
|
--
--
150
40
100
450
4000
1500
800
125
1803
2709
|
--
--
100
10
100
450
3000
2000
600
25
2404
903
|
1500
1000
50
15
75
150
1000
500
200
25
4515
|
1500
2000
50
10
75
150
1000
1000
200
25
6010
|
Step distribution method:
i)A manufacturing company has 2
production dept P1,P2,P3 service dept time keeping stores dept , maintenance
dept. the dept somany shows the following expenses for july 1998.
Product Dept Service Dept
P1 P2 Time keeping Stores Maintenance
16000 10000 4000 5000 3000
The other information relating to
departments as follows:-
|
Item
|
Production
dept
|
|
Service
department
|
|
|
|
|
P1
|
P2
|
T
|
S
|
M
|
|
No
of employees
|
40
|
30
|
_
|
20
|
10
|
|
NO
of stores refusitions
|
24
|
20
|
_
|
_
|
6
|
|
No
of machine hours
|
2400
|
1000
|
_
|
_
|
_
|
(4:3:2:1)=4000*4/10
Name of
Dept primary
Distribution (T)ime
keeping
(S)tores
(M)aintenance
P1 16000 1600 2784 2458
P2 14000 1200 2320 1638
T(s1) 4000 --- --- ---
S(s2) 5000 800 ---
---
M(s3) 3000 400 696 ---
38000 4000 5800 4096
●
Simultaneous Equation method:
A
company has 3 production depts and 2 service depts. And for a period the
departmental distribution as given below.
Production Dept Service
Dept
P1 P2 P3 S1 S2
800 700
500 234 300
The Expenses of the service dept charged on a
% basis as follows:
P1
P2 P3 S1 S2
S1 20% 40% 30% _ 10%
S2 40% 20% 20% 20% _
Prepare
a statement showing the apportionment of 2 service depts. Exps and 2 production
dept exps by simultaneous equation method.
Solution:
X=S1 overheads 234+20%y
Y=S2 overheads 300+10%x
X=234+0.2y 1 * 10
Y=300+0.x 2 * 10
10x
= 2340+2y 3
10y
= 3000+x 4
Equation 3×5
50x=11700+10y 5
10y=3000+x 6
-10y+50x=11700 7
10y-x = -3000
49x = 14700
x=14700÷49 x=300
X=300 substitute in equation 7
10y-300=3000
10y=3000+300
Y=3300/10
Y=330
Secondary
Distribution
|
Item
|
Total
|
|
P1
|
P2
|
|
P3
|
|
As
per Distribution
|
|
2000
|
800
|
|
700
|
500
|
|
S1.
Dept as per Distribution
300×90/100=270
|
|
270
(2:4:3)
|
60
|
|
120
|
90
|
|
S2.Dept
as per Distribution
330×80/100=264
|
|
264
(2:1:1)
|
132
|
|
66
|
66
|
|
|
|
2534
|
992
|
|
886
|
656
|
Repeated Distribution:
There
are 3 production depts. Namely A,B,C and Service depts. Namely X,Y .
|
Item
|
A
|
B
|
C
|
X
|
Y
|
|
Total
dept O.H’s per Primary distribution
|
6300
|
7400
|
2800
|
4500
|
2000
|
The company decided to charge the
service depts. Cost on the bases of the following%
A B C X Y
X 40% 30% 20% _ 10%
Y 30% 30% 20% 20% _
Find the total overheads of
production depts. Charging service dept. on simultaneous equation method.
Solution:
X
= X overheads 4500+20%Y
Y
= Y overheads
2000+10%X
X=4500+0.2y1×10
Y=2000+0.x 2×10
10X =
45,000+2y3×5
10Y = 20,000+x
4
-10y+50x=2,25,000
10y-x =20,000
49x=2,45,000
X=2,45,000/49 x=5000.
10y-x=20000
10y -5000=20,000
10y=25000
Y=25000/10=2500 therefore y=2500
|
Item
|
Total
|
A
|
B
|
C
|
|
As
per Distribution
|
16500
|
6300
|
7400
|
2800
|
|
X
dept as per distribution
5000×90/100
|
4500
(4:3:2)
|
2000
|
1500
|
1000
|
|
Y
dept as per distribution
2500×80/100
|
2000
(3:3:2)
|
750
|
750
|
500
|
|
|
23000
|
9050
|
9650
|
4300
|
1. Strong man limit has 3 production
depts. A ,B ,C and 2 service depts. X&Y.The following particulars are available for
the month of March 1991.
Rent-15000
Muncipal-5000
Electricity-2400
Indirect wages -6000
Power -6000
Dep on machinery -40000
Canteen Expenses -30000
Other labor expenses –
10000
The
further details are available as
|
Under
item
|
Total
|
Production
dept
|
|
|
Service
dept
|
|
|
|
|
A
|
B
|
C
|
X
|
Y
|
|
Floor
area
|
5000
|
1000
|
1250
|
1500
|
1000
|
250
|
|
Light
coins
|
240
|
40
|
60
|
80
|
40
|
20
|
|
Direct
wages
|
40000
|
12000
|
8000
|
12000
|
6000
|
2000
|
|
HP
of machines
|
150
|
60
|
30
|
50
|
10
|
---
|
|
Cost
of machines
|
200000
|
48000
|
64000
|
80000
|
4000
|
4000
|
|
Working
hours
|
|
2335
|
1510
|
1525
|
|
|
The expenses of service dept
allocated In the following manner
|
Dept
|
A
|
B
|
C
|
X
|
Y
|
|
X
|
20%
|
30%
|
40%
|
--
|
10%
|
|
Y
|
40%
|
20%
|
30%
|
10%
|
--
|
|
Item
|
Basis
of apportionment
|
Total
amount
|
A
|
B
|
C
|
X
|
y
|
|
Rent
|
Floor
area (4:5:6:4:1)
|
15000
|
3000
|
3750
|
4500
|
3000
|
750
|
|
Municipal
taxes
|
Floor
area (4:5:6:4:1)
|
5000
|
1000
|
1250
|
1500
|
1000
|
250
|
|
Electricity
|
Light
coins (2:3:4:2:1)
|
2400
|
400
|
600
|
800
|
400
|
200
|
|
Indirect
wages
|
Direct
wages (6:4:6:3:1)
|
6000
|
1800
|
1200
|
1800
|
900
|
300
|
|
Power
|
HP
of machines (6:3:5:1)
|
6000
|
2400
|
1200
|
2000
|
400
|
--
|
|
Dep.
Of machinery
|
Cost
of machines (12:16:20:1:1)
|
40000
|
9600
|
12800
|
16000
|
8000
|
8000
|
|
Canteen
expenses
|
Direct
wages (6:4:6:3:1)
|
30000
|
9000
|
6000
|
4000
|
4500
|
1500
|
|
Other
labor exps
|
Direct
wages (6:4:6:3:1)
|
10000
|
3000
|
2000
|
3000
|
1500
|
500
|
|
|
|
114400
|
30200
|
28800
|
38600
|
12500
|
4300
|
X=S1
12500+10%Y
Y=S2
4300 +10%X
X=12500+0.10Y×10
Y=4300+0.10X×10
10X=125000+Y
10Y=43000+X×10
10X - Y
=125000
10X+100Y=430000
99Y =555000
Y=555000/9 Y=
5606
10X –Y =125000
10X-5606=125000
10X=125000+5606
X=130606÷10 X=13061
Secondary distribution
|
Item
|
Total
|
A
|
B
|
C
|
|
As
per distribution
|
97600
|
30200
|
28800
|
38600
|
|
X
dept exps 13061×90/100
11755
|
11755
(2:3:4)
|
2612
|
3917
|
5224
|
|
Y
dept exps 5606×90÷100
5045
|
5045
(4:3:2)
|
2242
|
1121
|
1681
|
|
|
114399
|
35054
|
33839
|
45505
|
Machine hour rate:
|
Expenses
|
Bases
|
|
i)Standard
Charges rent and rates
|
● Floor area occupied including surroundings space.
|
|
ii)Heating
&Lighting
|
● Number of light coins used or floor area occupied.
|
|
iii)Supervision,
Foreman salary or operator or wages.
|
● Time devoted by supervision.
|
|
iv)Lubricated
oils and consumable stores.
|
● Cost experiance
|
|
v)Insurance
|
● Insurable value of machine or cost of machine.
|
|
vi)Miscillaneous
expenses
|
● Equitable bases depending up on facts.
|
|
vii)Machine
exps
|
● Cost of machine+ installation charges-scrap value ÷
Life of machine .in hours
|
|
viii)Power
|
● Actual consumption as shown by meter readings or
estimated consumption ascertain from past experience.
|
|
ix)Repairs
&Machine
|
● Cost of repairs spread over its working life.
|
Problems:
1)A machine is purchased for cash Rs
9200.Its working life estimated to be 18000hrs after which its scrap value is
estimated accomplished it is assumed from cost experience that.
i.
The
machine is work for 1800hrs annually.
ii.
The
repairs charges will be 1080 during the hold period of life of the machine.
iii.
Power
consumption will be 5 units per hrs at 6ps per unit.
iv.
Other
annual charges are estimated to be rent of dept(machine price) 1/5 of total
space 780 rs
v.
Light
12 points in the dept 2 points engaged in the machine 288 rs
vi.
Foreman
salary ¼ of this time is debated in the machine 6000rs
vii.
Insurance
premium per machinery 36 rs
viii.
Cotton
wastage 60
ix.
Scrap
value 200
Find out the machine hour rate of
about data allocation of the work exps to all jobs for which machine is used.
Calculation of machine hour rate
|
Item
|
Amount
|
Amount
|
|
Standard charges:
Rent
780/5
Lighting
& heating
288/12
× 2
Foreman
salary
6000
× ¼
Insurance
Cotton
wastage
Total
standard charge
1800/1800
Machine expenses:
Depreciation
9200-200/18000
= 9000/18000
Repairs
1080/18000
Power
5×0.06
|
156
48
1500
60
|
1.00
0.50
0.60
0.30
240
|
|
|
1800
|
|
2)machine x cost is 110000 and has
life of 15 years and scrap value is 5000 rs. The normal working hrs per annum
is 2400 hrs. including 10% preventive maintenance. The following information is
available for machine.
i.
Rent
2400/- per annum
ii.
Light
50 per month
iii.
Power
700 per month. 10 % per unit
iv.
Suppliers
1800/- per annum
v.
Repairs
3600/- per annum
vi.
Wages
of the operator 2rs per hrs and supervision 600 per month ascertain the
comprehensive rate.
Working notes:
2400× 10/100 =
240
2400-240 = 2160
Calculation of machine hour rate
|
Item
|
Amount
|
Amount
|
|
Standard charges:
Rent
Lighting
(50×12)
Suppliers
Supervision
(600×12)
Total
standard charges
12000/2160
Machine expances:
Depreciation
110000-5000/15
= 7000
7000/2160
Power
700×12 = 8400/2160
Repairs
3600/2160
wages
|
2400
600
1800
7200
|
5.55
3.24
3.89
1.66
2
|
|
|
1200
|
|
16.35
4)Using the machine hour rate as
calculated about work out the amount of factory overhead to be observed on the
following
Job number total hrs production
time in hrs setting obtain hrs
605 100 80 20
505 100 70 30
Calculate the machine hour rate
|
Item
|
Amount
|
amount
|
|
Standard charges:
Rent
50000/70000 × 2500
Lighting
& heating
20000/70000
× 2500
Supervision
130000/26
Reserve
1500/26
Total
standard charges
7558/1800
Machine expenses:
depreciation
23000-0/10 = 2300/1800
setting
& adjusting labor
200×6
= 1200/1800
Power
Machine
operator 6×1/3,2
Factory
overheads for job no 605
80×20.13
Job
no 595
70
× 20.15
|
1786
714
5000
58
|
4.19
12.78
0.66
0.50
2.00
|
|
|
7558
|
|
|
|
|
20.13
1610
1409
3019
|
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