COST ACCOUNTING

jan-12 Goods issue -- -- -- 300 20 6,000 500 9,300

jan-14 Goods issue -- -- -- 400 20 8,000 100 1,300
jan-20 Goods receipt 400 20 8,000 -- -- -- 500 9,300

jan-27 Goods receipt 250 25 6,250 -- -- -- 750 15,550

jan-28 Goods issues -- -- -- 500 20 10,000 250 5,550

Next model: Economic Order Quantity

EOQ (Economic order quantity) = √
C

A= Annual Demand
O= Ordering Cost per Order
C= Carry cost (or) Storage Cost per Unit
12. From the following information calculate economic order quantity and the number of
order to be placed in one quarter of the year.

1. Quarterly consumption of material 200 kg.
2. Cost of placing one order 50 Rs.
3. Cost per unit 40 Rs.
4. Storage and carrying cost 8% of cost per unit.
A= Annual Demand (200 x4) = 800 units
O= Ordering Cost per Order =50Rs
C= Carry cost (or) Storage Cost per Unit = 40 x 8 = 3.20 Rs

100

EOQ = √

C

= √ = √ , = √ , = 158.11 units (or) 158 units.

3.20 3.20

No.of orders per quarter:

Quarterly consumption = 200 units

Re-order quantity (EOQ) = 158 units

No. of orders Per Quarter = Quarterly consumption = 200 = 1.26 orders

Re-order Quantity 168

13. X, Y Company requires 1500 units of a material per month, each costing @ 27 Rs.
Cost per order 150 Rs. Per unit the inventory carrying charges work out 20% of the average
inventory. Find out the EOQ and number of orders per year.

A= Annual Demand (1500 x12) = 18,000 units
O= Ordering Cost per Order =150Rs
C= Carry cost (or) Storage Cost per Unit = 27 x 20 = 5.4 Rs

100

EOQ = √
C

TAKKELLA PUNNAIAH CHOWDARY Page 51

= √ , = √ , , = √ , , = 1,000 units

5.40 5.40

No.of orders per Year:

Annual consumption = 18,000 units

Re-order quantity (EOQ) = 1,000 units

No. of orders Per year = yearly consumption = 18,000 = 18 orders

Re-order Quantity 1,000

14. From the following information calculate economic order quantity? Annual demand

12000 units. Ordering cost Rs. 90 per order. Inventory carry cost per annum 15 Rs per unit.

A= Annual Demand =12,000 units

O= Ordering Cost per Order = 90Rs

C= Carry cost (or) Storage Cost per Unit =15 Rs per unit

EOQ = √ = √ , , = √ , , = 379.11 units=379 units
C 15

= √ ,
15

15. From the following information calculate economic order quantity and the number of

order to be placed in one quarter of the year.

1. Annual consumption = 1.00.000 units.

2. Cost of placing one order 50 Rs.

3. Cost per unit 20 Rs.

4. Storage and carrying cost 8% of cost per unit.

A= Annual Demand = 1, 00,000 units)

O= Ordering Cost per Order = 50Rs

C= Carry cost (or) Storage Cost per Unit = 20 x 8 = 1.60 Rs
100

EOQ = √

C

= √ , , = √ , , , = √ , , = 2,500 units.

1.60 1.60

No.of orders per quarter:

Quarterly consumption = 1, 00,000 units =25,000 units

4

Re-order quantity (EOQ) = 2,500 units

No. of orders Per Quarter = Quarterly consumption = 25,000= 10orders

Re-order Quantity 2,500

TAKKELLA PUNNAIAH CHOWDARY Page 52

16. From the following information calculate economic order quantity

1. Annual usage of material = 600 units.

2. Buying cost per order 6 Rs.

3. Cost per unit of material 2.40 piece.

4. Storage and carrying cost 20% of cost per unit.

A= Annual Demand = 600 units

O= Ordering Cost per Order =6Rs

C= Carry cost (or) Storage Cost per Unit = 2.40 x 20 = 0.48 Rs

100

EOQ = √ = √ , = √ , = 122.47 units =127 units
C 0.48

= √
0.48

17. In a manufacturing company a material is used as follows
1. Re-order quantity 3600 units.
2. Maximum consumption 900 units per week.
3. Minimum consumption 300 units per week.
4. Normal consumption 600 units per week.
5. Re-order period 3 to 5 weeks.
Calculate Maximum stock level, minimum stock level, and average stock level.
Stock level:

Re-Order level= Maximum Consumption X Maximum Re- Order Period
= 900 X 5= 4500 units

Maximum Stock level= Re-Order Quantity + Re-Order level – (Minimum Consumption X
Minimum Re- Order Period)

= 3,600 + 4,500 – (300 X 3) = 8100—(900) = 8100—900=7,200 units

Minimum Stock level=Re-Order level – (Normal Consumption X Normal Re- Order Period)
= 4,500—(600 X 4) = 4,500 –2,400= 2,100 units.

Average Stock level= Maximum Stock level + Minimum Stock level = 7,200+2,100= 9,300
2 22

= 4,650 Units.

18. In a manufacturing company a material is used as follows
1. Re-order quantity 48000 units.
2. Maximum consumption 12000 units per week.
3. Minimum consumption 4000 units per week.
4. Normal consumption 8000 units per week.
5. Time required for delivering minimum 4 weeks. Maximum 6 weeks.
Calculate Maximum stock level, minimum stock level, and average stock level.

TAKKELLA PUNNAIAH CHOWDARY Page 53

Stock level:
Re-Order level= Maximum Consumption X Maximum Re- Order Period

= 12,000 X 6= 72,000 units

Maximum Stock level= Re-Order Quantity + Re-Order level – (Minimum Consumption X
Minimum Re- Order Period)

= 48,000 + 72,000 – (4,000 X 4) = 1,20,000—(16,000) = 1,20,000—16,000=1,04,000 units

Minimum Stock level=Re-Order level – (Normal Consumption X Normal Re- Order Period)
= 72,000—(8,000 X 5) = 72,000 –40,000= 32,000 units.

Normal Re-Order Period= Maximum Re-Order Period + Minimum Re-Order Period =
2

6+4= 10 =5
22

Average Stock level= Maximum Stock level + Minimum Stock level = 1, 04,000+32,000=
22

1, 36,000 = 68,000 Units.
2

19. Caluclate the minimum, maximum and re-order stock levels from the following information?
1. Minimum consumption 100 units per day
2. Maximum consumption 150 units per day
3. Normal consumption 120 units per a day
4. Re-order period 10 to 15 days.
5. Re- order quantity 1500 units.
6. Normal Re-order period 12 days.
Stock level:

Re-Order level= Maximum Consumption X Maximum Re- Order Period
= 150 X 15= 2,250 units

Maximum Stock level= Re-Order Quantity + Re-Order level – (Minimum Consumption X
Minimum Re- Order Period)

= 1,500+ 2,250 – (100 X 10) = 3,750—(1,000) = 3,750—1,000=2,750 units

Minimum Stock level=Re-Order level – (Normal Consumption X Normal Re- Order Period)
= 2,250—(120 X 12) = 2,250 –1,440= 810 units.

Average Stock level= Maximum Stock level + Minimum Stock level = 2,750+810 =3560
2 22

= 1,780 units.

20. Two components X and Y are used as follows. Page 54
Normal usage 600 units per week each.
Maximum usage 900 units per week each.
Minimum usage 300 units per week each.

TAKKELLA PUNNAIAH CHOWDARY

Re-order quantity X 4800 units Y 7200 units.
Re-order period X 4to 6 weeks Y 2to 4 weeks.
Calculate per each components Re-order level, Maximum, Minimum and average stock
Levels.

Stock level:
Re-Order level= Maximum Consumption X Maximum Re- Order Period

X = 900 X 6= 5,400 units
Y = 900 X 4= 3,600 units

Maximum Stock level= Re-Order Quantity + Re-Order level – (Minimum Consumption X
Minimum Re- Order Period)

X= 4,800+ 5,400 – (300 X 4) = 10,200—(1,200) = 10,200—1,200=9,000 units

Y= 7,200+ 3,600 – (300 X 2) = 10,800—(600) = 10,800—600=10,200 units

Minimum Stock level=Re-Order level – (Normal Consumption X Normal Re- Order Period)
X = 5,400—(600 X 5) = 5,400 –3,000= 2,400 units.
Y = 3,600—(600 X 3) = 3,600 –1,800= 1,800 units.

Normal Re-Order Period= Maximum Re-Order Period + Minimum Re-Order Period =

2

X= 4+6 =5 Y= 4+2 =3

22

Average Stock level= Maximum Stock level + Minimum Stock level
2

X = 9,000+2,400 = 11,400 = 5,700 units
22

Y = 10,200+1,800 = 12,000 = 6,000 units
22

21. From the following information calculate the stores levels.
1. Average delivery time 20 days.
2. Maximum Delivery time 30 days.
3. Minimum delivery time 15 days.
4. Minimum delivery period per emergency purchases 5 days.
5. Average date of consumption per day 25 units
6. Maximum date of consumption per day 35 units
7. Minimum consumption per day 14 units
8. Standard ordering quantity 600 units.

Stock level:
Re-Order level= Maximum Consumption X Maximum Re- Order Period
= 35 X 30= 1,050 units

Maximum Stock level= Re-Order Quantity + Re-Order level – (Minimum Consumption X
Minimum Re- Order Period)

TAKKELLA PUNNAIAH CHOWDARY Page 55

= 600+ 1,050 – (14 X 15) 1,650—(210) = 1,650—210=1,440 units

Minimum Stock level=Re-Order level – (Normal Consumption X Normal Re- Order Period)
= 1,050—(25 X 20) = 1,050 –500= 550 units.

Average Stock level= Maximum Stock level + Minimum Stock level = 1,440+550 =1,940
2 22

= 970 units.

22. Suresh company uses three types of materials X, Y and Z for production of H production?

The following information is given to u.

MATERIALS

X YZ

Normal usage units 200 150 180

Minimum usage units 100 100 90

Maximum usage units 300 250 270

Re-order quantity units 750 900 720

Re-order period (months) 2to 3 3to 4 2to 3

Calculate for each material Reorder level, Minimum, Maximum and average stock level.

Stock level:

Re-Order level= Maximum Consumption X Maximum Re- Order Period

X = 300 X 3= 900 units

Y = 250 X 4= 1,000 units

Z = 270 X 3= 810 units

Maximum Stock level= Re-Order Quantity + Re-Order level – (Minimum Consumption X

Minimum Re- Order Period)
X= 750+ 900 – (100 X 2) = 1,650—(200) = 1,650—200=1,450 units

Y= 900+ 1,000 – (100 X 3) = 1,900—(300) = 1,900—300=1,600 units

Z = 720+ 810 – (90 X 2) = 1,530—(180) = 1,530—180=1,350 units

Minimum Stock level=Re-Order level – (Normal Consumption X Normal Re- Order Period)
X = 900—(200 X 2.5) = 900 –500= 400 units.

Y = 1,000—(150 X 3.5) = 1,000 –525= 475 units.

Z = 810—(180 X 2.5) = 810 –450= 360 units.

Normal Re-Order Period= Maximum Re-Order Period + Minimum Re-Order Period =

2

X= 2+3 =5/2=2.5 Y= 3+4 =7/2=3.5 Z= 2+3 =5/2=2.5

2 22

TAKKELLA PUNNAIAH CHOWDARY Page 56

Average Stock level= Maximum Stock level + Minimum Stock level
2

X = 1,4500+400 = 1,850 = 925 units
22

Y = 1,600+475 = 2,075 = 1,037.5 units
22

Z = 1,350+360 = 1,710 = 855 units
22

23. Calculate Required stock level.
Normal usage 100 units per day each.
Maximum usage 130 units per day each.
Minimum usage 60 units per day each.
Re-order period 20 to 30 days.
Maximum stock level 7800 units and Minimum stock level 1400 units.
Stock level:

Re-Order level= Maximum Consumption X Maximum Re- Order Period
= 130X 30= 3,900 units

Maximum Stock level= Re-Order Quantity + Re-Order level – (Minimum Consumption X
Minimum Re- Order Period)

7,800 = 3,900 + X – (60 X 20) = 3,900+X—(1,200) = 3,900+X—1200
7,800 = 3900—1,200+X
7,800 = 2700+X
X = 7,800—2,700 =5,100
Re-Order Quantity= 5,100 units

Minimum Stock level=Re-Order level – (Normal Consumption X Normal Re- Order Period)
= 3,900—(100 X 25) = 3,900 –2,500= 1,400 units.

Normal Re-Order Period= Maximum Re-Order Period + Minimum Re-Order Period =
30+20= 50 =25
22

Average Stock level= Maximum Stock level + Minimum Stock level = 7,800+1,400=
22

9,200 = 4,600 Units.
2

24. Suresh company manufactures a special product of the following particulars were
calculated for the year 2009.

Cost of placing on order Rs.100
Annual cost of carrying per unit Rs. 15
Normal usage Rs.50 units per week.
Minimum usage Rs.25 units per week.
Maximum usage Rs. 75 units per week.
Reorder period 4to6 weeks.
Calculate Maximum stock level, minimum stock level, and average stock level.

TAKKELLA PUNNAIAH CHOWDARY Page 57

A= Annual Demand (50 X52 week) = 2,600 units

O= Ordering Cost per Order =100Rs

C= Carry cost (or) Storage Cost per Unit = 15 Rs

EOQ = √
C

= √ , = √ , , = √ , . = 186.18 units =186 units
15 15

Stock level:
Re-Order level= Maximum Consumption X Maximum Re- Order Period
= 75 X 6= 450 units

Maximum Stock level= Re-Order Quantity + Re-Order level – (Minimum Consumption X
Minimum Re- Order Period)

= 186+ 450 – (25 X 4) =636—(100) = 636—100=536 units

Minimum Stock level=Re-Order level – (Normal Consumption X Normal Re- Order Period)
= 450—(50 X 5) = 450 –200= 250 units.

Re-Order Period= Maximum Re-Order Period + Minimum Re-Order Period =
2

6+4= 10 =5
22

Average Stock level= Maximum Stock level + Minimum Stock level = 536+250 =786
2 22

= 393 units.

25. The following data pertain to material X

Supply period = 4to8 months.

Consumption Rate:

Maximum = 600 units per month, Minimum =100 units per month

Normal = 300 units per month, yearly = 3,600 units.

Storage costs are 50% of stock value, ordering costs are 400 per order. Price per unit at

material Rs.64. Calculate Maximum stock level, minimum stock level, and average stock level.

A= Annual Demand (300 X12 week) = 3,600 units

O= Ordering Cost per Order =400Rs

C= Carry cost (or) Storage Cost per Unit = 64 X 50 =32Rs

100

EOQ = √
C

TAKKELLA PUNNAIAH CHOWDARY Page 58

= √ , = √ , , = √ , = 300 units
32 32

Stock level:
Re-Order level= Maximum Consumption X Maximum Re- Order Period
= 600 X 8= 4,800 units

Maximum Stock level= Re-Order Quantity + Re-Order level – (Minimum Consumption X
Minimum Re- Order Period)

= 300+ 4,800 – (100 X 4) =5,100—(400) = 5,100—400=4,700 units

Minimum Stock level=Re-Order level – (Normal Consumption X Normal Re- Order Period)
= 4800—(300 X 6) = 4,800 –1,800= 3,000 units.

Re-Order Period= Maximum Re-Order Period + Minimum Re-Order Period =
2

8+4= 12 =6
22

Average Stock level= Maximum Stock level + Minimum Stock level = 4,700+3000 =7,700
2 22

= 3,850 units.

26. Following information related to a type of raw material is available annual demand 2400
units. Unit price Rs.2.40. ordering cost per order Rs.4. storage cost 2% per annum. Interest 10%
per annum. Calculate economic order quantity?

A= Annual Demand = 2,400 units

O= Ordering Cost per Order =4Rs

C= Carry cost (or) Storage Cost per Unit = 2.40 X 12 =0.288

(Storage cost + interest) (10+2=12% 100

EOQ = √ = √ , = √ , . = 258.16 units=258 units
C 0.288

= √ ,
0.288

TAKKELLA PUNNAIAH CHOWDARY Page 59

UNIT-III

LABOUR

Time Rate System: No. of Hours Worked X Rate per Hour
(OR)

No. Of Days Worked X Rate per Day

Piece Rate System: : No. of Units Produced X Rate per Unit
(OR)

No. Of Pieces Produced X Rate per Piece
Incentives (or) Bonus Scheme:

Halsey Plan: Wage Payment= Time taken x Rate per Hour

Bonus = 50 X(Time Taken X Rate per Hour)

100

= Time taken x Rate per Hour + 50 X(Time Taken X Rate per Hour)

100

Rowan Plan: Wage Payment= Time taken x Rate per Hour

Bonus = Time saved X (Time Taken X Rate per Hour

Standard Time

= Time taken x Rate per Hour + Time saved X (Time Taken X Rate per Hour

Standard Time

1. From the following particulars calculate the earnings of a worker for one hour under Halsey

and Rowan Premium plan?

Standard time —10 hours

Time taken to complete to work --- 6 hours. Rate per Hour--- 2Rs.

Standard Time = 10 Hours

Time Taken = 6 Hours

Rate Per Hour = 2 Rs
Time Saved = Standard Time – Time Taken= 10—6 = 4 hours.

Halsey Plan = Time taken x Rate per Hour + 50 X (Time Taken X Rate per Hour)

100

= 6 X 2 + 50(4X2)

100

=6 X 2+0.5 X8

= 12+ 4 =16 Rs. Rate Per Hour= 16 =2.66 Rs

6

Rowan Plan = Time taken x Rate per Hour +Time saved X (Time Taken X Rate per Hour

Standard Time

= 6 X 2 + 4 X (6 X 2)

10

= 12+ 0.4 X 12

= 12+ 4.8 =16.8 Rs Rate Per Hour= 16.8 =2.8 Rs

6

TAKKELLA PUNNAIAH CHOWDARY Page 60

2. Calculate total earnings and effective wage rate per hour under Halsey plan and Rowan plan.

Time allowed ----48 hours.

Time taken ----40hours. Rate per Hour--- 10Rs.

Standard Time = 48 Hours
Time Taken = 40 Hours
Rate Per Hour = 10 Rs
Time Saved = Standard Time – Time Taken= 48—40 = 8 hours.
Halsey Plan = Time taken x Rate per Hour + 50 X (Time Taken X Rate per Hour)

100
= 40 X 10 + 50 (8X10)

100
=400+0.5 X80

= 400+ 40 =440 Rs. Rate Per Hour= 440 =11 Rs

40

Rowan Plan = Time taken x Rate per Hour +Time saved X (Time Taken X Rate per Hour

Standard Time

= 40 X 10 + 8 X (40 X 10)

48

= 400+ 0.16 X 400

= 400+ 64 =464 Rs Rate Per Hour= 464 =11.6 Rs

40

3. Hamsa engineering company the standard time allowed for a job is 20 hours. The standard
rate per hour is Rs. 1.00 plus dearness allowances at the rate of 30paisa per hour worked. The
actual time taken by the worker is 15 hours. Calculate the earning per hour under (A) Time wage
system (B) Piece wage System(C) Halsey (D) Rowan plan.

Standard Time = 20 Hours

Time Taken = 15 Hours

Rate Per Hour = Standard Rate + DA= 1.00+ 0.30= 1.30 Paisa
Time Saved = Standard Time – Time Taken=20—15 = 5 hours.

No. of units produced = 1

Rate per piece = 20 Rs

Time Rate System = Time Taken X Rate Per hour

15 X 1-30 = 19-50

Piece Rate System= No.of Pieces produced X Rate per Piece

1 X 20= 20

Halsey Plan = Time taken x Rate per Hour + 50 X (Time Taken X Rate per Hour)
100

= 15 X 1-30 + 50 (5X1)
100

=19-50+0.5 X 5

= 19-50+ 2-50 =22-00 Rs. Rate Per Hour= 22-00 =1-46 Rs

TAKKELLA PUNNAIAH CHOWDARY Page 61

15
Rowan Plan = Time taken x Rate per Hour +Time saved X (Time Taken X Rate per Hour

Standard Time
= 15 X 1-30 + 5 X (15 X 1)

20
= 19-50+ 0.25 X 15

= 19-50+ 3.75 =23-25 Rs Rate Per Hour= 23-25 =1-55Rs
15

4. Calculate the earnings of worker from the following information under Time rate , Piece rate

and Halsey,Rowan plan.

Standard time : 48hours

Standard production : 96 units

Time taken : 40hours

Hourly rate of wages : Rs.50

Piece rate : Rs.30 per unit.

Standard Time = 48 Hours

Time Taken = 40 Hours

Rate Per Hour = 50 Rs
Time Saved = Standard Time – Time Taken= 48—40 = 8 hours.

No. of units produced = 96

Rate per piece = 30 Rs

Time Rate System = Time Taken X Rate Per hour

40 X 50 = 2,000

Piece Rate System= No.of Pieces produced X Rate per Piece

96 X 30= 2,880

Halsey Plan = Time taken x Rate per Hour + 50 X (Time Taken X Rate per Hour)
100

= 40 X 50 + 50 (8X50)
100

=2,000+0.5 X400

= 2,000+ 200 =2,200 Rs. Rate Per Hour= 2,200 =55 Rs

40

Rowan Plan = Time taken x Rate per Hour +Time saved X (Time Taken X Rate per Hour

Standard Time

= 40 X 50 + 8 X (40 X 50)

48

= 2,000+ 0.16 X 2,000

= 2,000+ 320 =2,320 Rs Rate Per Hour= 2,320 =58 Rs
40

TAKKELLA PUNNAIAH CHOWDARY Page 62

5. During the 1st week of January 2007. The workman Mr. Nagarjuna manufactured 300
articles. He receives wage for a guaranteed 48 hours week at the rate of Rs.4 per hour. The
estimated time to produced one article is 10 minutes and under the incentive skill. The time
allowed is increased by 20%.

Calculate his wage according to time rate system, piece rate system and Halsey and Rowan
plan.

No.of Articles Produced = 300

Time taken for one article = 10 minutes

+ Extra time 10x 20 = 2 minutes

100 12 minutes

For 300 Articles = 300 x 12= 3,600 minutes

60 minutes = 1 hour

3,600 minutes = ?

3,600 x 1= 60 hours

60
Standard Time = 60 Hours

Time Taken = 48 Hours
Rate Per Hour = 4 Rs
Time Saved = Standard Time – Time Taken=60—48 = 12 hours.

No. of units produced = 300 Articles

Rate per piece = 0.72 Rs

Time Rate System = Time Taken X Rate Per hour

48 X 4 = 192

Piece Rate System= No.of Pieces produced X Rate per Piece

300 X 0.72= 216

Hourly rate = 4-00

Hour = 60 minutes

1 minute rate = 4-00= 0.06 Paisa

60

Time taken for 1 Article = 12 minutes

Rate per 12 minutes = 12 x 0.06 = 0.72 Paisa

Halsey Plan = Time taken x Rate per Hour + 50 X (Time Taken X Rate per Hour)

100

= 48 X 4 + 50 (12X4)

100

=192+ 0.5 X 48

= 192+ 24 =216 Rs. Rate Per Hour= 216 =4-50 Rs

48

TAKKELLA PUNNAIAH CHOWDARY Page 63

Rowan Plan = Time taken x Rate per Hour +Time saved X (Time Taken X Rate per Hour
Standard Time

= 48 X4 + 12 X (48 X 4)
60

= 192+ 0.2 X 192

= 192+ 38.4=230.4 Rs Rate Per Hour= 230.4 =4-80Rs
48

6. A, B&C are skilled workers wages are paid at Rs. 4 per hour. Standard time allowed

completing the job X is 3hours. But A completed the job in 21/2 hours, B in 2hours and C in

3hours.

Calculate their earnings under Halsey Premium and Rowan plan method.

Job X Standard Hours Time Taken Time Saved

A3 2.5 0.5

B3 21

C3 30

Rate Per Hour= 4 Rs

Halsey Plan = Time taken x Rate per Hour + 50 X (Time Taken X Rate per Hour)

100

A = 2.5 X 4 + 50 (0.5X4)

100

=10+0.5 X 2

= 10+1 =11 Rs. Rate Per Hour= 11 =4-40 Rs
2.5

B= 2 X 4 + 50 (1X4)
100

=8+0.5 X 4

= 8+2 =10 Rs. Rate per Hour= 10 =5-00 Rs

2

C= 3 X 4=12 Rate Per Hour= 12 =4-00 Rs

3

Rowan Plan = Time taken x Rate per Hour +Time saved X (Time Taken X Rate per Hour

Standard Time

A = 2.5 X 4 + 0.5 X (2.5 X 4)

3

= 10+ 0.16 X 10

= 10+ 1.6 =11.16 Rs Rate Per Hour= 11.16 =4.46 Rs
2.5
B = 2 X 4 + 1 X (2 X 4)
3

= 8+ 0.33 X 8

TAKKELLA PUNNAIAH CHOWDARY Page 64

= 8+ 2.64 =10.64 Rs Rate Per Hour= 10.64 =5.32 Rs

2

C= 3 X 4=12 Rate Per Hour= 12 =4-00 Rs

4

7. Calculate the normal and overtime wages payable a workmen from the following?

Day Hours worked

M8

T 10

W9

T 11

F9

S4

51

Normal working hours 8 hours per day. Normal rate 0.50 paisa per hour. Overtime rate 3.00 per

hour.

Day Standard Time Actual Time Over Time

M8 8 --

T8 10 2

W8 91

T8 11 3

F8 91

S8 4 --

Total 51 7

Actual hours (51-7) (40 X0.50) = 22

Over hours ( 7X3) = 21

43

8. Calculate the normal and overtime wages payable workmen from the following?

Day Hours worked

M8

T9

W 10

T 11

F9

S4

51

Normal working hours 8 hours per day. Normal rate 0.50 paisa per hour.

Overtime Rate : Up to 9 hours in a day at single rate and over 9 hours in a day at double rate or

up to 48 hours in a single Rate and over 48 hours at double rate, whichever is more beneficial

to the workman.

Day Standard Time Actual Time Over Time

M9 8 --

T9 9 --

W9 10 1

T9 11 2

F9 9 --

S9 4 --

TAKKELLA PUNNAIAH CHOWDARY Page 65

Total 51 3

(I) Actual hours (51-3) (48 X0.50) = 24-00
Over Time (3X1) = 3-00

(II) Wage Payment (48 X0.50) 27-00
= 24-00
Over Time (3X1) = 3-00

27-00

9. The standard productions of factory 10 units per hour for a day of 9 hours, the wage are Rs.6

per hour. Bonus rated on Efficiency is paid according to a scale as follows.

Level of Efficiency Bonus Percentage on wages

Up to 60% of standard NIL

Above 60%and up to 75% 5%

Above 75%and up to 90% 10%

Above 90%and up to 100% 15%

For increase of every 1% efficiency beyond 100% the bonus also rises by 1%. The output of 4

workers on a day was as follows.

Siva=50 units, Rama=90units, Krishna=90 units, Seshu=105 units. Calculate the earnings of

each worker.

Standard Production = 10 X 8 =80 units
80 Units = 100% Efficiency

Siva = 50 units Rama = 80 units Krishna = 90 units Seshu = 105 units

80 units= 100% 80 units= 100% 90units= 100% 105units= 100%

50units = ? 80units = ? 90units = ? 105units = ?

50 x100 80 x100 90 x100 105 x100
80 80 80 80

62.5% 100% 112.5% 131.25

Wage payment to Siva = Wage payment to Rama =

Basic pay = 8 hours X 6 Rs = 48-00 Basic pay = 8 hours X 6 Rs = 48-00

+ Bonus = 48 X 5 = 2-40 + Bonus = 48 X 15 = 7-20
100 50-40 100 55-20

Total Pay Total Pay

TAKKELLA PUNNAIAH CHOWDARY Page 66

Wage payment to Krishna= Wage payment to Seshu =

Basic pay = 8 hours X 6 Rs = 48-00 Basic pay = 8 hours X 6 Rs = 48-00

+ Bonus = 48 X 15 = 7-20 + Bonus = 48 X 15 = 7-20

100 100

+ Additional Bonus = 48 X 12.5 = 6-00 + Additional Bonus = 48 X 31.25 = 15-00

100 100

Total Pay 61-20 Total Pay 70-20

10. In a manufacturing concern the daily wages guaranteed for workers is Rs.2. The standard

output for the month is 1,000 units Representing 100% efficiency. The rate of wages is paid

without bonus to those workers who show up to 662/3% efficiency. Beyond this bonus is payable

in a graded scale.

Efficiency Bonus

90% 10%

100% 20%

Further increase of 1% bonus for every 1% further rise in efficiency. Calculate the total

earnings of Ramesh, Suresh, Umesh and Mahesh who worked for 26 days in month and their out

put being 500, 900, 1000 and 1,200 respectively.

Standard Production = 1,000units
1,000 Units = 100% Efficiency

Ramesh = 500 units Suresh = 900 units Umesh = 1,000 units Mahesh = 1,200 units

1,000 units= 100% 1,000units= 100% 1,000units= 100% 1,000units= 100%

500units = ? 900units = ? 1,000units = ? 1,200units = ?

500 x100 , 900 x100 1,000 x100 1,200 x100
1,000 1,000 1,000 1,000

50% 90% 100% 120%

Wage payment to Ramesh = Wage payment to Suresh =

Basic pay = 26 days X 2 Rs = 52-00 Basic pay = 26 days X 2 Rs = 52-00

+ Bonus = = 0-00 + Bonus = 52 X 10 = 5-20
Total Pay 52-00 100 57-20

Total Pay

TAKKELLA PUNNAIAH CHOWDARY Page 67

Wage payment to Umesh= Wage payment to Mahesh =

Basic pay = 26 days X 2 Rs = 52-00 Basic pay = 26 days X 2 Rs = 52-00

+ Bonus = 52 X 20 = 10-40 + Bonus = 52 X 20 = 10-40
100 = 10-40
100
+ Additional Bonus =
= 0-00 + Additional Bonus = 52 X 20

100

Total Pay 62-40 Total Pay 72-80

11. Using the following data you are required to ascertain the wages paid Ram and Raj under
Taylor’s method.
Standard time allowed =10 units per hour.

Normal wage rate = 1 Rupee per hour
Differential piece rate when below standard (A) 75% of piece rate when below standard.

(B) 125% of piece rate when at (or) above standard
The workers we have produced in a day of 9 hours as follows. 1. Ram-60 units 2...Raj-100 units

Time allowed = 10 units per hour

Units produced per one day = 10 x 8=80 units

Normal Wage Rate = 1-00 per hour

1 hour = 10 units

1 hour = 1-00 Rs

Per unit = 1 = 0.10 paisa

10

Ram = 60 units Raj = 100 units

80 units= 100% 80units= 100%

60units = ? 100units = ?

60 x100 = 75% , 100 x100 =125%

80 80

Wage payment = No.Of units X rate per unit X Percentage

Ram= 60 X 0.10 X 75 = 4-50 Paisa
100

Raj = 100 X 0.10 X 125 = 12-50 Paisa
100

12. From the following particulars calculate labour cost per man day of 9 hours.
(a) Basic wage Rs 4 per day.
(b) D.A 0.50 Paisa per every point 100 cost of living index. Current cost of living index 700
points.
(c) Leave salary 100% of A and B.

TAKKELLA PUNNAIAH CHOWDARY Page 68

(d) Employers contribution to P.F 9% of A, B and C.
(e) Employers contribution to ESI 12.5% of A,B and C.
(f) Expenditure on amenities to labour Rs.40 per head per month.
(g) Number of working days in a month 25 days of 9 hours each.

Statement showing Labour cost per 8 hours a day

Particulars Per month Per day

(25 days) ( 8 hours)

Basic Pay(25x4) 100-00 4-00 (100/25)

DA(700-100) 600X0.5 300-00 12-00(300/25)

Leave Salary (A+B) 400-00 16-00(400/25)

PF (A+B+C) (100+300+400) 800x 8 64-00 2-56(64/25)
100

ESI(A+B+C) (100+300+400) 800x 12.5 100-00 4-00(100/25)
100

Amenities 40-00 1-60(40/25)

Basic Pay 1,004 40-16

13. A worker takes 9 hours to complete a job on daily wages and 6 hours on a scheme of
payment by results.
His day rate is Rs.7.50 per hour. The material cost of the product is Rs.40 and the overheads are
received at 50% of direct wages (total)

Calculate the following cost of the product under: (a) Piece work plan (b) Halsey plan (c)
Rowan plan.

Standard Time = 9 Hours

Time Taken = 6 Hours

Rate Per Hour = 7-50 Paisa
Time Saved = Standard Time – Time Taken=9—6 = 3 hours.

No. of units produced = 1

Rate per piece = 67-50 Rs

Piece Rate System= No.of Pieces produced X Rate per Piece
1 X 67-50= 67-50

Rate per unit = Standard Time X Rate per hour
= 9 X 7-50 = 67-50 Rs

TAKKELLA PUNNAIAH CHOWDARY Page 69

Halsey Plan = Time taken x Rate per Hour + 50 X (Time Taken X Rate per Hour)
100

= 6 X 7-50 + 50 (3X 7-50)
100

=45-00+0.5 X 22-50

= 45-00 + 11-25 56-25 Rs. Rate Per Hour= 56-25 =9-37 Rs

6

Rowan Plan = Time taken x Rate per Hour +Time saved X (Time Taken X Rate per Hour

Standard Time

= 6 X 7-50 + 3 X (6 X 7-50)

9

= 45-00+ 0.33 X 45-00

= 45-00+ 14-85 =59-85 Rs Rate Per Hour= 59-85 =9-97Rs
6

Cost sheet

Particulars Piece Rate Halsey Method Rowan Method
40-00 40-00
Materials 40-00 56-25 59-85
+Direct Wages 7-50 28-12 29-92
33-75
+Overheads 124-37 129-77
67.50 x50/100
56.25x50/100
59.85x50/100

Total 141-25

Merrick Differential Piece rate system:

Up to 83 1 % Efficiency = Normal Piece Rate
3 = Piece Rate + 10% Bonus
= Piece Rate + 20% Bonus
From to 83 1 % To 100 % Efficiency
3

Above 100%

14. The following particulars apply a particular job?
1. Standard production per hour 6 units
2. Normal rate per hour 1.20 paisa
3. In an 9 hours day.
Mohan produces 32 units, Sohan produces 42 units, and laxman produces 50 units.
Calculate the wages at these workers under Merrick Differential piece rate system.

Standard Production per hour = 6 units

Units produced per one day = 6 x 8=48 units

Normal Wage Rate = 1-20 per hour

1 hour = 6 units

1 hour = 1-20 Rs

TAKKELLA PUNNAIAH CHOWDARY Page 70

Per unit = 1.20 = 0.20 paisa

6

Mohan = 32 units Sohan =42 units Laxman = 52 units

48 units= 100% 48 units= 100% 48 units= 100%

32 units = ? 42 units = ? 52 units = ?

32 x100 = 66.66% 42 x100 =87.5% 52 x100 =108.33%
48
48 48

Wage payment = No.Of units X rate per unit + Bonus

Mohan = 32 X 0.20 = 6-40 Paisa

Sohan = 42X 0.20 = 8-40 Paisa + 8-40x10= 8-40+0-84 =9-24 Paisa
100

Laxman = 52X 0.20 = 10-40 Paisa + 10-40x20= 10-40+2-08 =12-48 Paisa
100

15. On the basis of the following information calculate the earnings of A,B andC,D under
Merrick Differential Piece rate System.
1. Standard production per hour 12 units
2. Normal rate per hour 0.60 paisa
3. In an 9 hours day.
A produced 64 units, B produced 96 units, C produced 100 units, D produced 84 units.

Standard Production per hour = 12 units
Units produced per one day = 12 x 8=96 units
Normal Wage Rate per hour = 0-60 per hour

Per unit = 0-60 = 0.05 paisa per unit

12

A = 64 units B =42 units C = 52 units D = 84 units

96 units= 100% 96 units= 100% 96 units= 100% 96 units= 100%

64 units =? 96 units =? 100 units =? 84 units=?

64 x100 = 66.66% 96 x100 =100% 100 x100 =104.16% 84x100= 87.5%

96 96 96 96

Wage payment = No.Of units X rate per unit + Bonus

A = 64 X 0-05 = 3-20 Paisa

TAKKELLA PUNNAIAH CHOWDARY Page 71

B = 96X 0-05 = 4-80 Paisa + 4-800x10= 4-80+0-48 =5-28 Paisa
100

C = 100X 0-05 = 5-00 Paisa + 5-000x20= 5-00+1-00 =6-00 Paisa
100

D = 84X 0-05 = 4-20 Paisa + 4-020x10= 4-20+0-42 =4-62 Paisa
100

16. From the data given below, calculate the comparative works cost for a job in factory A and

B.

Factory A Factory B

Method of payments of wages Halsey plan Rowan plan

Standard time for the job 250 hours 240 hours

Actual time taken by a worker to complete job 200 hours 210 hours

Hourly rate of wages Rs.2.50 Rs.3.00

Material cost for the job Rs.1.000 Rs.900

Factory overhead 150% wages 1331/3 of wages.

Standard Time = 250 Hours

Time Taken = 200Hours

Rate Per Hour = 2-50 Paisa
Time Saved = Standard Time – Time Taken=250—200 = 50 hours.

Halsey Plan = Time taken x Rate per Hour + 50 X (Time Taken X Rate per Hour)
100

= 200 X 2-50 + 50 (50X 2-50)
100

=500+0.5 X 125-00

= 500 + 62-50= 562-50 Rs. Rate Per Hour= 562-50 =2-81 Rs

200

Standard Time = 240 Hours

Time Taken = 210Hours

Rate Per Hour = 3-00 Paisa
Time Saved = Standard Time – Time Taken=240—210 = 30 hours.

Rowan Plan = Time taken x Rate per Hour +Time saved X (Time Taken X Rate per Hour
Standard Time

= 210 X 3-00 + 30 X (210 X 3-00)
240

= 630-00+ 0.12 X 630-00

= 630-00+ 75-60 =705-60 Rs Rate Per Hour= 705-60 =3-36 Rs
210

TAKKELLA PUNNAIAH CHOWDARY Page 72

Particulars Halsey Method Rowan Method
Materials 1,000-00 900-00
+ direct wages 562-50 705-60
+ overheads 843-75 940-77

Total = 2,406-25 2,546-37
562-50x 150

100
705-60x 133.33

100
Total

17. From the following particulars work out the earnings for the week of a worker under
(a) Straight piece rate (b) Taylors differential piece rate (c) Halsey premium rate (d) Rowan
system(July 2013)
Number of working hours per week 48.
Wages per hour Rs.3.75
Rate per piece Rs. 1.50
Normal time per piece 20 minutes.
Normal output per week 120 pieces
Actual output for the week 150 pieces

Standard Time per piece = 20 minutes

1 hour = 60 minutes

No.of units produced per one hour = 60 =3 units

20

No.of units produced per 48 hours = 48x3 =144 units

Straight piece rate = 150x1-50= 180 Rs

Taylor differential piece rate system:

144 = 100%
120 = ?
120 x 100 = 83.33%
144
Piece rate = 120x1-50= 180-00 Rs

Standard hours =48
Normal time = 120x20= 2,400 units

1 hour = 60 minutes
Per 2,400 units how much time taken = 2,400 = 40 hours

60
Time taken = 40 hours
Time saved = 48-40= 8 hours
Rate per hour = 3-75 Rs

TAKKELLA PUNNAIAH CHOWDARY Page 73

Halsey Plan = Time taken x Rate per Hour + 50 X (Time Taken X Rate per Hour)
100

= 40 X 3-75 + 50 (8X 3-75)
100

=150-00+0.5 X 30-00

= 150-00 + 15-00= 165-00 Rs.

Rowan Plan = Time taken x Rate per Hour +Time saved X (Time Taken X Rate per Hour
Standard Time

= 40 X 3-75 + 8 X (40 X 3-75)
48

= 150-00+ 0.16 X 150-00

= 150-00+ 24-00 =174-00 Rs

.18. From the following particulars calculate earning of workers A and B under;
(a) Normal piece rate and (b) Taylor’s differential piece rate system.

Normal rate per hour Rs.1.90
Standard time—20sec. Per unit

Differential piece rate: Low piece rate ---90% piece rate

High piece rate ---120% piece rate
Worker “A” produces 1,300 units in a day.
Worker “B” produces 1,500 units in a day

Standard Time per piece = 20 seconds

1 minute = 60 seconds

No.of units produced per 1 minute= 60= 3 units

20

Per 1 hour 60x 3= 180

Straight piece rate = 150x1-50= 180 Rs

Per one day = 180x8 = 1,440 units

Normal rate per hour = 1-80

Per hour = 60 minutes

1 minute = 1-80 = 0.03

60

Per one second = 0.03= 0.0005

60

Per 20 seconds = 0.0005x20=0.01

A= 1,300 units

1,440 = 100%
1,300 = ?
1,300x100= 90.27%
1,440

TAKKELLA PUNNAIAH CHOWDARY Page 74

Normal Piece Rate= No. units produced X Rate per unit

= 1300 X 0.01= 13-00

Taylor differential piece rate system=

Wage payment = 1300 X 0.01 =13-00

+ Bonus 13 X 10 = 1-30

100 14-30

B = 1,500 units

1,440 = 100%

1,500 = ?

1,500x100= 104%

1,440

Normal Piece Rate= No. units produced X Rate per unit

= 1500 X 0.01= 15-00

Taylor differential piece rate system=

Wage payment = 1500 X 0.01 =15-00

+ Bonus 15 X 20 = 3-00

100 18-00

TAKKELLA PUNNAIAH CHOWDARY Page 75

UNIT-IV

OVERHEADS

Primary distribution:

1. The following information is supplied the record of a company

Rent 2,000 Maintenance 1,200
Depreciation 900
Employer’s contribution to P.F 300

Insurance 1,000 Lighting 200

Energy 1,900 Supervision 3,000

DEPARTMENTS

Particulars A BC D

Floor space (sq.ft) 150 110 90 50

Number of workers 24 16 12 9

Total direct wages 9,000 6,000 4,000 2,000

Cost machinery 24,000 19,000 12,000 6,000

Stock of goods 15,000 9,000 6,000 -----

Prepare a statement showing apportionment of costs to various Departments.

Primary Distribution

Expenses Basis of allocation Amount Share Production Dept D
Rent ABC 250
Floor Space 2,000 2,000=50
Depreciation (150:110:90:50) 40 750 550 450 90
(15:11:9:5) 900 ---
Insurance Cost of machinery 1,000 900=90 360 270 180
(24,000:18,000:12,000:6,000) 10 500 300 200 225
Energy (4:3:2:1) 1,800 1,000=100 ---
Maintenance Stock of goods 1,200 10 675 495 405 30
Employers PF (15,000:9,000:6000) 300 600 360 240
(5:3:2) 1,800=45 120 90 60 25
Lighting Floor space 200 40 400
Supervision (15:11:9:5) 3,000 75 55 45
Stock of goods 1,200=120 1,200 800 600
(5:3:2) 10
Total direct wages
(8,000:6,000:4,000:2,000) 300=30
(4:3:2:1) 10
Floor space
(15:11:9:5) 200=5
No.of workers 40
(24;16:12:8) 3,000=200
(6:4:3:2) 15

Total 10,400 4,280 2,920 2,180 1,020

TAKKELLA PUNNAIAH CHOWDARY Page 76

2. The modern company has three production dept. A, B and C and one service department.

D.

Rent 1,000 Supervision 1,500

Depreciation of plant 450 Repairs to plant 300

Fire insurance in respect of stock 500 Lighting 120

Power 900 Employers liability for insurance 150

DEPARTMENTS

Particulars A BC D

Area (sq.ft) 1500 1100 900 500

Number of workers 20 15 10 5

Total direct wages 6,000 4,000 3,000 2,000

Value of plant 24,000 18,000 12,000 6,000

Stock of goods 15,000 9,000 6,000 -----

H.P of plant 24 18 12 6

Prepare a statement showing apportionment of costs to various Departments.

Primary Distribution

Expenses Basis of allocation Amount Share Production Dept D
Rent ABC 125
Floor Space 1,000 1,000=25 375 275 225
Depreciation (150:110:90:50) 40 45
(15:11:9:5) 450 180 135 90 ---
Fire Insurance Value of plant 500 450=45 250 150 100
(24,000:18,000:12,000:6,000) 900 10 90
Power (4:3:2:1) 1,500 500=50 360 270 180 150
Supervision Stock of goods 10 600 450 300
(15,000:9,000:6000) 300 30
Repairs to plant (5:3:2) 900=90 120 90 60
HP of plant(24:18:12:6) 120 10 15
Lighting (4:3:2:1) 150 45 33 27 20
Employer No.of workers 1,500=150 60 40 30
insurance (20;15:10:5) 10
(4:3:2:1)
Value of plant 300=30
(4:3:2:1) 10
Floor space
(15:11:9:5) 120=3
40
Direct wages 150=10
(6:4:3:2) 15

Total 4,920 1,990 1,443 1,012 475

TAKKELLA PUNNAIAH CHOWDARY Page 77

3. Prasad company ltd is supplied the following costing records of a company.

Rent 4,000 Maintenance 3,600

Depreciation 1,200 Employer’s contribution to P.F 600

Insurance 1,500 Lighting 400

Energy 2,400 Supervision 6,000

DEPARTMENTS

Particulars A BC D

Floor space (sq.ft) 150 110 90 50

Number of workers 24 16 12 9

Total direct wages 9,000 6,000 4,000 2,000

Cost machinery 24,000 19,000 12,000 6,000

Stock of goods 15,000 9,000 6,000 -----

Prepare a statement showing apportionment of costs to various

Primary Distribution

Expenses Basis of allocation Amount Share Production Dept D
Rent ABC 500
Floor Space 4,000 4,000=100 120
Depreciation (150:110:90:50) 1,200 40 1,500 1100 900
(15:11:9:5) 480 360 240 ---
Insurance Cost of machinery 1,500 1,200=120
(24,000:18,000:12,000:6,000) 10 750 4500 300 300
Energy (4:3:2:1) 2,400 ---
Maintenance Stock of goods 3,600 1,500=150 900 660 540 60
Employers PF (15,000:9,000:6000) 600 10 1,800 1,080 720
(5:3:2) 240 180 120 50
Lighting Floor space 400 2,4000=60 800
Supervision (15:11:9:5) 6,000 40 150 110 90
Stock of goods 2,400 1,600 1,200
(5:3:2) 3,600=360
Total direct wages 10
(8,000:6,000:4,000:2,000)
(4:3:2:1) 600=60
Floor space 10
(15:11:9:5)
No.of workers 400=10
(24;16:12:8) 40
(6:4:3:2)
6,000=400
15

Total 19,700 8,220 5,540 4,110 1,830

TAKKELLA PUNNAIAH CHOWDARY Page 78

4. Chowdary co.ltd has three production dept. A, B, C and two service dept. D and E. the

following figures extracted from the records of the company.

Rent &rates 5,000 Indirect wages 1,500

Dep of machinery 10,000 Power 1,500

General Lighting 600 Sundries 10,000

The following further details are available.

Particulars Total A B C DE

Floor space (sq.ft) 10,000 2,000 2,500 3,000 2,000 500

Light points 60 10 15 20 10 5

Direct wages(Rs.) 10,000 3,000 2,000 3,000 1,500 500

H.P of machines 150 60 30 50 10 ----

Value of machinery 2, 50,000 60,000 90,000 1, 00,000 5,000 5,000

Apportion the costs to various depart on the most equitable basis.

Primary Distribution

Expenses Basis of allocation Amount Share Production Dept

ABCDE

Rent &Rates Floor Space 5,000 5,000=250 1,000 1,250 1,500 1,000 250
(20:25:30:20:5) 10,000 20 2,400 3,200 4,000 200 200
Depreciation (4:5:6:4:1)
General Cost of machinery 10,000=200
lighting (12:16:20:1:1) 50
Lighting points
(10:15:20:10:5) 600 600=50 100 150 200 100 50
(2:3:4:2:1) 12

Indirect Direct wages 1,500 1,500=75 450 300 450 225 75
wages (6:4:6:3:1) 20

Power HP of Machines 1,500 1,500=100 600 300 500 100 ---
(6:3:5:1) 15

Sundries Direct wages 10,000 10,000=500 3,000 2,000 3,000 1,500 500
(6:4:6:3:1) 20

Total 28,600 7,550 7,200 9,650 3,125 1,075

SECONDARY DISTRIBUTION

5. The following data from the books of galaxy company ltd. For the year ended 30 Sep

2004. Prepare overhead distribution summary.

Production departments service departments

AB C XY

Direct wages (Rs) 7,000 6,000 5,000 1,000 1,000

Direct material (Rs) 3,000 2,500 2,000 1,500 1,000

Employees (no) 200 150 150 50 50

Electricity (kWh) 9,000 6,000 6,000 2,000 3,000

Light point (no) 10 15 15 55

Asset value 50,000 30,000 20,000 10,000 10,000

Area occupation 900 600 600 200 200

TAKKELLA PUNNAIAH CHOWDARY Page 79

The expense for 6 months were

Stores over heads 400 Motive power 1,500

Electricity &lighting 200 Labour welfare 3,000

Depreciation 6,000 Repairs&maintanence 1,200

General over heads 10,000 Rent& Taxes 600

Apportion the expenses of dept. X in the ratio of 4:3:3 and that dept. of Y in proportion

to direct wages to department A, B and C respectively.

Primary Distribution

Expenses Basis of Amount Share Production Dept Service Dept
allocation
Direct Material 2,500 400=20 A B C X Y
Direct Wages Direct material 2,000 20 --- --- --- 1,500 1,000
Stores overheads (6:5:4:3:2) 400 --- --- --- 1,000 1,000
Electricity& lighting Lighting point 200=20 120 100 80
Depreciation (2:3:3:1:1) 200 10 60 40
General overheads Asset value 6,000 40 60 60
Motive power (5:3:2:1:1) 6,000=500 20 20
Labour welfare Direct material 10,000 12 2,500 1,500 1,000
Repairs & (6:5:4:3:2) 1,500 500 500
maintenance Electricity 3,000 10,000=500 3,000 2,500 2,000
Rent& taxes (8:6:6:2:3) 20 1,500 1,000
No employees 1,200 480 360 360
(4:3:3:1:1) 600 1,500=60 120 180
Asset value 25 1,000 750 750
(5:3:2:1:1) 27,400 250 250
Area occupation 3,000=250 500 300 200
(4:3:3:1:1) 12 100 100
Total 200 150 150
1,200=100 50 50
12 7,840 5,720 4,600
5,100 4,140
600=50
12

Expense Allocation Secondary Distribution Service department
Amount as per Amount Production Department XY
Primary Distribution
A BC 5,100 4,140
27,400 7,840 5,720 4,600

Dept “X” 4:3:3(5,100/10=510) 2,040 1,530 1,530 (5,100)

Direct wages 1,610 1,380 1,150 (4,140)
Dept “Y” 7:6:5 (4,140/18=230)

Total 27,400 11,490 8,630 7,280

TAKKELLA PUNNAIAH CHOWDARY Page 80

6. Tata electronics following particulars have been collected for the 3 month ending. U re

required to prepare an overheads distribution summary.

Production departments service departments

AB C D E

Direct wages (Rs) 2,000 3,000 4,000 1,000 2,000

Direct material (Rs) 1,000 2,000 2,000 1,500 1,500

Staff (no) 100 150 150 50 50

Electricity (kWh) 4,000 3,000 2,000 1,000 1,000

Light point (no) 10 16 4 64

Asset value 60,000 40,000 30,000 10,000 10,000

Area occupation 150 250 50 50 50

The expenses for the period were

Stores over heads 400 Motive power 550

Lighting power 200 Amenities to staff 1,500

Depreciation 15,000 Repairs& maintenance 3,000

General over heads 6,000 Rent& Taxes 275

Apportion the cost of service dept. ‘E” on the basis of direct wages and dept. “D’ is the

ratio 5:3:2 to production dept. A, Band C respectively.

Primary Distribution

Expenses Basis of Amount Share Production Dept Service Dept
allocation
Direct Material 3,000 400=25 A B C D E
Direct Wages Direct material 3,000 16 --- --- --- 1,500 1,500
Stores overheads (2:4:4:3:3) 400 200=10 --- --- --- 1,000 2,000
Lighting point 20 50 100 100
Electricity& (5:8:2:3:2) 200 15,000=1,000 75 75
lighting Asset value 15 50 80 20
Depreciation (6:4:31:1) 15,000 6,000=375 30 20
Direct material 16 6,000 4,000 3,000
General overheads (2:4:4:3:3) 6,000 550=50 1,000 1,000
Electricity 11 750 1,500 1,500
Motive power (4:3:2:1:1) 550 1,500=150 1,125 1,125
No employees 10 200 150 100
Amenities to staff (2:3:3:1:1) 1,500 3,000=200 50 50
Asset value 15 300 450 450
Repairs & (6:4:31:1) 3,000 150 150
maintenance Area 1,200 800 600
occupation 200 200
Rent& taxes (3:5:1:1:1)
Total 275 275=25 75 125 25 25 25
32,925 11 8,625 7,205 5,795 5,155 6,145

TAKKELLA PUNNAIAH CHOWDARY Page 81

Expense Allocation Secondary Distribution Service department
Amount as per Amount Production Department XY
Primary Distribution A BC
32,925 8,625 7,205 5,795 5,155 6,145

Dept “D” 5:3:2(5,155/10=515.5) 2,578 1,546 1,031 (5,155)

Direct wages 1,365 2,049 2,731 (6,145)
Dept “E” 2:3:4(6,145/18=682.77)

Total 32,925 12,568 10,800 9,557

7. Himalaya stores ltd supplied you the following information for the month ending jan-

2003. u re required to apportion the overheads to production department.

Production departments service departments

AB C XY

Direct wages (Rs) 14,000 12,000 10,000 2,000 2,000

Direct material (Rs) 6,000 5,000 4,000 3,000 2,000

Employees (no) 400 300 300 100 100

Electricity (kWh) 16,000 12,000 12,000 4,000 6,000

Light point (no) 20 30 30 10 10

Asset value 1, 00,000 60,000 40,000 20,000 20,000

Area occupation 1,600 1,200 1,200 400 400

The expense for 6 months were

Stores over heads 900 Motive power 3,000

Lighting 400 Labour welfare 6,000

Depreciation 12,000 Repairs&maintanence 2,400

General over heads 20,000 Rent& Taxes 1,200

Apportion the expenses of dept. X in the ratio of4:3:3 and that of the dept. Y proportion

to direct wages to dept. A, B, C respectively.

Primary Distribution

Expenses Basis of Amount Share Production Dept Service Dept
allocation
Direct Material 5,000 800=40 A B C X y
Direct Wages Direct 4,000 20 --- --- --- 3,000 2,000
Stores material 800 --- --- --- 2,000 2,000
overheads (6:5:4:3:2) 240 200 160 120
Lighting point 80
Lighting (2:3:3:1:1) 120
Asset value 400 400=40 80 120 2,000 40 40
Depreciation (5:3:2:1:1) 12,000 10 5,000 3,000 1,000 1,000
Direct 4,000
General material 12,000=1,000 720
overheads (6:5:4:3:2) 12 1,500
Electricity
Motive power (8:6:6:2:3) 20,000 20,000=1,000 6,000 5,000 3,000 2,000
No employees 3,000 20 960 720 240 360
Labour welfare 6,000 2,000 1,500 500 500
3,000=120
25

6,000=500

TAKKELLA PUNNAIAH CHOWDARY Page 82

Repairs & (4:3:3:1:1) 2,400 12 1,000 600 400 200 200
maintenance Asset value 1,200 2,400=200 400 300 300 100 100
(5:3:2:1:1)
Rent& taxes Area 12
occupation 1,200=100
(4:3:3:1:1)
Total 12

54,800 15,680 11,440 9,200 10,200 8,280

Secondary Distribution

Expense Allocation Amount Production Department Service department
XY
Amount as per ABC
10,200 8,280
Primary Distribution 54,800 15,680 11,440 9,200

Dept “X” 4:3:3(5,100/10=510) 4,080 3,060 3,060 (10,200)

Direct wages 3,220 2,760 2,300 (4,140)
Dept “Y” 7:6:5 (4,140/18=230)

Total 54,800 22,980 17,260 14,560

REPEATED DISTRIBUTION:

8. Onida company has 3 production dept. and 2 service dept. in July 2003 the depot’s

expenses were as follows.

Production department Service department

A: 9000 E: 2340

B: 6500 F: 3000

C: 7000

21,500 5,340 = 26,940

The service dept. expenses are charged out on a percentage basis

Production dept. service dept.

Service department A B C EF

E 20% 25% 35% --- 20%

F 25% 25% 40% 10% ---

Prepare statement showing the allocation of the expenses of the two service departments

to the production dept.

Repeated distribution

Expense Allocation Amount Production Department Service department
XY
A BC
2,340 3,000
Amount as per 26,840 8,000 6,500 7,000

Primary Distribution

Dept “E” 20:25:35:20 468 585 819 (2,340) 468

4:5:7:4 (2,340/20=117)

Dept “F” 25:25:40:10 867 867 1387.2 346.8 (3,468)

5:5:8:2 (3468/20=173.4)

Dept “E” 4:5:7:4 (346.8/20=17.34) 69.36 86.7 121.38 (346.8) 69

TAKKELLA PUNNAIAH CHOWDARY Page 83

Dept “F” 5:5:8:2 (39/20=3.45) 15 15 24 6 (69)
Dept “E” 4:5:7:4 (6/20=0.3 1.2
Dept “F” 1.2 1.5 2.1 (6) (1.2)
5:5:8:2 (1.2/20=0.06)
Total 0.3 0.3 0.48 0.12

26,840 9,420.86 8055.5 9354.16

9. Sindhu Company has three production dept. and two service depts. and for a period the

departmental distribution summary has the following total.

Production department Service department

P1: 900 S1: 234

P2: 700 S2: 300

P3: 500

2,000 5, 34 = 2,534

The service dept. expenses are charged out on a percentage basis

Production dept. Service dept.

Service department P1 P2 P3 S1 S2

S1 20% 40% 30% --- 10%

S2 40% 20% 20% 20% ---

Prepare statement showing the allocation of the expenses of the two service departments

to the production dept.

Repeated distribution

Expense Allocation Amount Production Department Service department

Amount as per P1 P2 P3 S1 S2

Primary Distribution 2,534 800 700 500 234 300

Dept “S1” 20:40;:30:10 47 94 70 (234) 23

2:4:3:1 (234/10=23.4)

Dept “S2” 40:20:20:20 129 65 65 64 (323)

4:2:2:2 (323/10=32.3)

Dept “S1” 2:4:3:1(64/10=6.4) 13 25 20 (64) 6
Dept “S2” 4:2:2:2 (7/10=0.7) (6)
321 --

Total 2,534 992 886 656

TAKKELLA PUNNAIAH CHOWDARY Page 84

SIMULTANEOUS EQUATION METHOD (OR) EQUATION DISTRIBUTION

METHOD

10.The following particulars related to a manufacturing company which has three production

dept. A, Band C and two service dept. X and Y.

PRODUCTION DEP SERVICE DEP

A BC XY

Total departmental overhead

As per primary distribution 6,300 7,400 2,900 4,500 2,000

The company desired to charge the service departments. Cost on the

Basis Of the following percentages.

Production dept. Service dept.

Service department A B C XY

X 40% 30% 20% --- 10%

Y 30% 30% 20% 20% ---

Find the total overheads of production departments by using the following the two

methods. 1. Simultaneous equation method 2.Repeated distribution.

X= a+ by X=4,500 +20% y
Y= a+ bx Y=2,000 +10% x

X= 4,500+ 20 y X = 4,500 + 0.2 y
100
Y = 2,000 + 0.1x
Y= 4,500+ 10 x
100 10X = 45,000 + 2y
10Y = 20,000 + 1x
X = 4,500 + 0.2 y x10
Y = 2,000 + 0.1x x10 50X = 2, 25,000 + 10y
10Y = 20,000 + 1x
10X = 45,000 + 2y x5
10Y = 20,000 + 1x

50X = 2, 25,000 + 10y
-1x = 20,000 - 10y
49X = 2, 45,000

X= 2,45,000 = 5,000 X= 5,000
49

X value Y= 2,000+ 0.1(5,000) Y= 2,000 + 500 = 2,500
Y = 1,000 + 0.1x

TAKKELLA PUNNAIAH CHOWDARY Page 85

Simultaneous Equation Method

Expense Allocation Amount Production Department
Dept X
Amount as per ABC

Primary Distribution 16,500 6,300 7,400 2,800

40;30;20

4:3:2 (5,000x90/100=4,500) 4,500 2,000 1,500 1,000

Dept Y 30:30:20 2,000 750 750 500

3:3:2 (2500x80/100=2,000)

Total 23,000 9,050 9,650 4,300

11. The following particulars relates to maintain company three production departments

I,J,K and two service departments M,N.

PRODUCTION DEP SERVICE DEP

I JK MN

Total departmental overhead

As per primary distribution 3,150 3,700 1,900 2,250 1,000

The company desired to charge the service departments. Cost on the

Basis Of the following percentages.

Production Dept. Service Dept.

Service department I J K MN

M 40% 30% 20% --- 10%

N 30% 30% 20% 20% ---

Find the total overheads of production departments by using the following the two

methods. 1. Simultaneous equation method 2.Repeated distribution.

Repeated Distribution

Expense Allocation Amount Production Department Service department
MN
Amount as per I JK
2,250 1,000
Primary Distribution 12,000 3,150 3,700 1,900

Dept “M” 40:30:20:10 900 675 450 (2,250) 225

4:3:2:1(2250/10=225)

Dept “N” 30:30:20:20: 368 367 245 245 (1,225)

3:3:2:2 (1,225/10=122.5)

Dept “M” 4:3:2:1(245/10=24.5) 98 73 49 (245) 25

Dept “N” 3:3:2:2 (25/10=2.5) 8 7 5 5 (25)

Dept “M” 4:3:2:1(5/10=0.5) 221 (5) 0
Total 12,000 4,526 4,824 2,650

TAKKELLA PUNNAIAH CHOWDARY Page 86

X= a+ by X=2,250 +20% y
Y= a+ bx Y1, 000 +10% x

X= 2,250+ 20 y X = 2,250 + 0.2 y
100
Y = 1,000 + 0.1x
Y= 1,000+ 10 x
100 10X = 22,500 + 2y
10Y = 10,000 + 1x
X = 2,250 + 0.2 y x10
Y = 1,000 + 0.1x x10 50X = 1, 12,500 + 10y
10Y = 10,000 + 1x
10X = 22,500 + 2y x5
10Y = 10,000 + 1x

50X = 1, 12,500 + 10y
-1x = 10,000 - 10y
49X = 1, 22,500

X= 1, 22,500 = 5,000 X= 2,500
49 Y= 1,000+ 0.1(2,500) Y= 1,000 + 250 = 1,250

X value
Y = 1,000 + 0.1x

Simultaneous Equation Method

Expense Allocation Amount Production Department
Dept M
Amount as per ABC

Primary Distribution 8,750 3,150 3,700 1,900

40;30;20

4:3:2 (2,500x90/100=2,250) 2,250 1,000 750 500

Dept N 30:30:20 1,000 375 375 250

3:3:2 (1,250x80/100=1,000)

Total 12,000 4,525 4,825 2,650

12. A factory has three production departments and two service departments. The overhead

departmental distribution summary the following:

DEPARTMENTS RS. DEPARTMENTS RS.

A 6, 50,000 C 5, 00,000

B 6, 00,000 P 1, 20,000

Q 1, 00,000

The service department expenses are allotted on a percentage basis as follows:

Production Dept. Service Dept.

Service department AB C PQ

P 30% 40% 15% --- 15%

Q 40% 30% 25% 5% ---

TAKKELLA PUNNAIAH CHOWDARY Page 87

Find the total overheads of production departments by using the following the two
methods. 1. Simultaneous equation method 2.Repeated distribution.

Repeated Distribution

Expense Allocation Amount Production Department Service department
Amount as per MN
Primary Distribution I JK
1,20,000 1,00,000
19,70,000 6,50,000 6,00,000 5,00,000

Dept “P” 30:40:15:15 36,000 48,000 18,000 (1,20,000) 18,000
Dept “Q” 6:8:3:3(1,20,000/20=6,000 47,200 35,400 29,500 5,900 (1,18,000)

40:30:25:5
8:6:5:1(1,18,000/20=5,900

Dept “P” 6:8:3:3(5,900/20=295) 1,770 2,360 885 (5,900) 885

Dept “Q” 8:6:5:1(885/20=44.25) 354 266 221 44 (885)

Dept “P” 6:8:3:3(44/20=2.2) 13 18 7 (44) 7

Dept “Q” 8:6:5:1(7/20=0.35) 322 0 (7)
Total 19,70,000 7,35,340 6,86,046 5,48,615

X= a+ by X=1, 20,000 +5% y
Y= a+ bx Y=1, 00, 000 +15% x

X= 1, 20,000+ 5y X = 1, 20,000 + 0.05 y
100
Y = 1, 00,000 + 0.15x
Y= 1, 00,000+ 15 x
100 10X = 12, 00,000 + 0.5y
10Y = 10, 00,000 + 1.5x
X = 1, 20,000 + 0.05y x10
Y = 1, 00,000 + 0.15x x10 200X = 2, 40, 00,000 + 10y
10Y = 10, 00,000 + 1.5x
10X = 12, 00,000 + 0.5y x20
10Y = 10, 00,000 + 1.5x

200X = 2, 40, 00,000 + 10y
-1.5x = 10, 00,000 - 10y
198.5X = 2, 50, 00,000

X= 2, 50, 00,000 = 1, 25,945 X= 1, 25,945

198.5

X value

Y = 1, 00,000 + 0.15x Y= 1, 00,000+ 0.1.5(1, 25,945)

Y= 1, 00,000 + 18,892 = 1, 18,892

TAKKELLA PUNNAIAH CHOWDARY Page 88

Simultaneous Equation Method

Expense Allocation Amount Production Department
Dept P
Amount as per ABC

Primary Distribution 17,50,000 6,50,000 6,00,000 5,00,000

30:40:15

6:8:3 (1,25,945x85/100=1,07,053) 1,07,053 37,784 50,378 18,891

Dept Q 40:30:25 1,12,947 47,556 35,668 29,723

8:6:5 (1,18,892x95/100=1,12,947)

Total 19,70,000 7,35,340 6,86,046 5,48,614

13. The company having three production departments A,B and C and two 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 its 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: 4, 00,000 B: 3, 50,000 and C: 2, 50,000
The expenses for boiler-house are Rs. 1, 17,000 and the pump-room Rs. 1, 50,000. The
expenses of boiler-house and pump-room are apportioned to the production departments on the
following basis:

A B C Boiler-house Pump-room

Expenses of boiler –house 20% 40% 30% --- 10%

Expense of pump-room 40% 20% 20% 20% ----

Show clearly as to how the expenses of boiler-house and pump-room would be

apportioned to A, B and C departments?

Repeated Distribution

Expense Allocation Amount Production Department Service department

Dept Amount as per ABC Boiler Pump
“boiler” Primary Distribution
Room Room

12,67,000 4,00,000 3,50,000 2,50,000 1,17,000 1,50,000

20:40:30:10 23.400 46,800 35,100 (1,17,000) 11,700
4:8:6:2(1,17,000/20=5,850)

Dept 40:20:20:20 64,680 32,340 32,340 32,340 (1,61,700)
“Pump” 2:1:1:1(1,61,700/5=32,340)

Dept 4:8:6:2(32,340/20=1,617) 6,468 12,936 9,702 (32,340) 3,234
“boiler”

Dept 2:1:1:1(3,234/5=646.8) 1,294 647 646 647 (3,234)
“Pump”

Dept 4:8:6:2(647/20=32.35) 130 259 194 (647) 64
“boiler”

Dept 2:1:1:1(64/5=12.8) 26 13 13 12 (64)

TAKKELLA PUNNAIAH CHOWDARY Page 89

“Pump” 4:8:6:2(12/20=0.6) 255 (12)
Total 12,67,000 4,96,000 4,43,000 3,28,000
Dept
“boiler

14. A company has three production cost centres A, B and C and two service cost centres X

and Y.

Cost centres overhead costs as allocated Estimates of Benefits

Received from service

(Rupees) Centres %

XY

A 90,000 20 20

B 40,000 30 25

C 20,000 40 50

X 20,000 -- 5

Y 10,000 10 --

Work out final overhead costs of each of the production departments

including re-apportioned cost of service centres using (a) continuous distribution method

and (b) simultaneous equation method.

X= a+ by X=20,000 +5% y
Y= a+ bx Y=10, 000 +10% x

X= 20,000+ 5y X = 20,000 + 0.05 y
100
Y = 10,000 + 0.10x
Y= 10,000+ 10 x
100 10X = 2, 00,000 + 0.5y
10Y = 1, 00,000 + 1x
X =20,000 + 0.05y x10
Y = 10,000 + 0.10x x10 200X = 40, 00,000 + 10y
10Y = 1, 00,000 + 1x
10X = 2, 00,000 + 0.5y x20
10Y = 1, 00,000 + 1.x

200X = 40, 00,000 + 10y
-1.x = 1, 00,000 - 10y
199X = 41, 00,000

X= 41,00,000 = 20,100 X= 20,100
199 Y= 10,000+ 0.1(20,100)

X value
Y = 10,000 + 0.10x

TAKKELLA PUNNAIAH CHOWDARY Page 90

Y= 10,000 + 2,010 = 12,010

Simultaneous Equation Method

Expense Allocation Amount Production Department
Dept X
Amount as per ABC

Primary Distribution 1,40,000 80,000 40,000 20,000

20:30:40

2:3:4 (20,100x90/100=18,090) 18,090 4,020 6,030 8,040

Dept Y 20:25:50 11,410 2,402 3,002 6,006

4:5:10 (12,010x95/100=11,410)

Total 1,69,500 86,422 49,032 34,046

15. you are supplied with the following information and required to work out the production

hour rate of overheads A,B,C the repeated distribution method :

PRODUCTION DEP SERVICE DEP

ABC PQ

Primary distribution overhead 7,910 12,543 4,547 4,000 2,600

Expenses of service departments P and Q are apportioned as under:

Production Dept. Service Dept.

Service department AB C PQ

P 30% 40% 20% --- 10%

Q 10% 20% 50% 20% ---

Estimated working hours of production are as under: A 1,000 hours; B 2,500 hours; C 1,400

hours.

Expense Allocation Repeated Distribution Service department
Amount Production Department
Dept “P” Amount as per AB c PQ
Dept “Q” Primary Distribution 31,500 7,810 12,543 4,547
Dept “P” 4,000 2,600
Dept “Q” 30:40:20:10
Dept “P” 3:4:2:1(4,000/10=400) 1,200 1,600 800 (4,000) 400

10:20:50:20 300 600 1,500 600 (3,000)
1:2:5:2(3,000/10=300

3:4:2:1(600/10=60) 180 240 120 (600) 60
12 (60)
1:2:5:2(60/10=6) 6 12 30 (12)

3:4:2:1(12/10=1.2) 453

Total 31,500 9,500 15,000 7,000

TAKKELLA PUNNAIAH CHOWDARY Page 91

16. You are supplied with the following information and required to work out the production

hour rate of absorption of overheads in departments A, B and C under simultaneous

equation method of distributing service departments costs to production departments.

Particulars Production dept. Service dept.

A BC PQ

Total overheads 11,310 13,050 9,040 7,500 6,100

No. hours worked 5,000 4,000 3,000

Distribution percentage

Of service dept. costs to P 30% 40% 20% --- 10%

Production departments Q 15% 25% 40% 20% ----

X= a+ by X=7,500 +20% y
Y= a+ bx Y=6,100 +10% x

X= 7,500+ 20 y X = 7,500 + 0.2 y
100
Y = 6,100 + 0.1x
Y= 6,100+ 10 x
100

X = 7,500 + 0.2 y x10 10X = 75,000 + 2y
Y = 6,100 + 0.1x x10 10Y = 61,000 + 1x

10X = 75,000 + 2y x5 50X = 3, 75,000 + 10y
10Y = 61,000 + 1x 10Y = 61,000 + 1x

50X = 3, 75,000 + 10y
-1x = 61,000 - 10y
49X = 4, 36,000

X= 4, 36,000 = 8,898 X= 8,898
49

X value Y= 6,100+ 0.1(8,898) Y= 6,100 + 890 = 6,990
Y = 6,100 + 0.1x

Simultaneous Equation Method

Expense Allocation Amount Production Department
Dept P
Amount as per ABC

Primary Distribution 32,400 11,310 13,050 8,040

30;40;20

3:4:2 (8,898x90/100=8,008) 8,008 2,669 3,559 1,780

Dept Q 15:25:40 5,592 1,048 1,748 2,796

3:5:8 (6,990x80/100=5,592)

Total 46,000 15,027 18,357 12,616

TAKKELLA PUNNAIAH CHOWDARY Page 92

Rate per Hour 15,027 18,357 12,616
5,000 4,000 3,000

= = =
3-00 4-58 4-20

17. Murugan ltd. Has three production departments A, B and C and two service departments

S1 and S2. Monthly expenses in Rs--- Rent 5,000; indirect wages 1,500; Depreciation

10,000; Lighting 600; Power 1,500; Sundries 10,000.

Total Production Dept. Service Dept.

A BC S1 S2

Floor space (sq.f) 10,000 2,000 2,500 3,000 2,000 500

Lighting points 60 10 15 20 10 5

Wages 10,000 3,000 2,000 3,000 1,500 500

Horse power 150 60 30 50 10 ----

Value of machines 2, 50,000 60,000 90,000 1, 00,000 5,000 5,000

Working hours 6,226 4,029 4,066

The service dept. expenses are charged out on a percentage basis

Production dept. Service dept.

Service department A B C XY

S1 20% 30% 40% --- 10%

S2 40% 20% 30% 10% ---

Calculate overhead charges recovery rate per hour.

Expenses Basis of allocation Primary Distribution Production Dept Service Dept
Amount Share ABC S1 S2
Rent Floor Space
(20:25:30:20:5) 5,000 5,000=250 1,000 1,250 1,500 1,000 250
Depreciation (4:5:6:4:1) 20
Lighting Cost of machinery
(12:16:20:1:1) 10,000 10,000=200 2,400 3,200 4,000 200 200
Indirect Lighting points 50
wages (10:15:20:10:5)
Power (2:3:4:2:1) 600 600=50 100 150 200 100 50
12
Sundries Direct wages
(6:4:6:3:1) 1,500 1,500=75 450 300 450 225 75
20
HP of Machines
(6:3:5:1) 1,500 1,500=100 600 300 500 100 ---
15
Direct wages
(6:4:6:3:1) 10,000 10,000=500 3,000 2,000 3,000 1,500 500
20

Total 28,600 7,550 7,200 9,650 3,125 1,075

TAKKELLA PUNNAIAH CHOWDARY Page 93

Secondary Distribution

Expense Allocation Amount Production Department Service department
Dept “S1”
Amount as per AB C S1 S2
Primary Distribution
20:30:40:10 28,600 7,550 7,200 9,650 3,125 1,075
2:3:4:1(3,125/10=312.5)
625 937 1,250 (3,125) 313

Dept “S2” 40:20:30:10 555 417 278 138 (1,388)

4:3:2:1(1,388/10=138.8)

Dept “S1” 2:3:4:1(138/10=13.8) 28 41 55 (138) 14
--- (14)
Dept “S2” 4:3:2:1(14/10=1.4) 65 3

Total 28,600 8,764 8,600 11,236
Rate per Hour
8,764 8,600 11,236
6,226 4,028 4,066

= = =
1-40 2-13 2-76

18. Murugan ltd. has three production departments A1, A2 and A3 and two service

departments B1 and B2. Monthly expenses in Rs--- Rent 25,000; indirect wages 7,500;

Depreciation 5,000; Lighting 3,000; Power 7,500; Sundries 50,000.

Total Production dept. Service dept.

A1 A2 A3 B1 B2

Floor space(sq.f) 10,000 2,000 2,500 3,000 2,000 500

Lighting points 60 10 15 20 10 5

Wages 50,000 15,000 10,000 15,000 7,500 2,500

Horse power 150 60 30 50 10 ----

Machines value 12, 50,000 3, 00,000 4, 00,000 5, 00,000 25,000 25,000

Working hours 6,226 4,029 4,066

The service dept. expenses are charged out on a percentage basis

Production dept. Service dept.

Service department A1 A2 A3 B1 B2

S1 20% 30% 40% --- 10%

S2 40% 20% 30% 10% ---

Calculate overhead charges recovery rate per hour.

TAKKELLA PUNNAIAH CHOWDARY Page 94

Primary Distribution

Expenses Basis of Amount Share Production Dept C Service Dept
allocation 25,000 AB 7,500 B1 B2
Rent 5,000 25,000=1,250
Floor Space 3,000 20 5,000 6,250 2,000 5,000 1,250
Depreciation (20:25:30:20:5) 7,500
Lighting (4:5:6:4:1) 5,000=100 1,200 1,600 1,000 100 100
Cost of machinery 50 2,250
Indirect (12:16:20:1:1) 500 750 500 250
wages Lighting points 3,000=250 2,250 1,500 1,125 375
(10:15:20:10:5) 12
(2:3:4:2:1) 7,500=375
Direct wages 20
(6:4:6:3:1)

Power HP of Machines 7,500 7,500=500 3,000 1,500 2,500 500 ---
(6:3:5:1) 15

Sundries Direct wages 50,000 50,000=2,500 15,000 10,000 15,000 7,500 2,500
(6:4:6:3:1) 20

Total 98,000 26,950 21,600 30,250 14,725 4,475

Expense Allocation Amount Production Department Service department
Dept “B1” 98,000 ABC
Amount as per 26,950 21,600 30,250 B1 B2
Primary Distribution
20:30:40:10 2,945 4,418 5,890 14,725 4,475
2:3:4:1(14,725/10=1,472.5)
(14,725) 1,472

Dept “B2” 40:20:30:10 2,379 1,784 1,190 594 (5,947)
4:3:2:1(5947/10=594.7)

Dept “B1” 2:3:4:1(594/10=59.4) 119 178 237 (594) 60

Dept “B2” 4:3:2:1(60/10=6) 24 18 12 6 (60)

Dept “B1” 2:3:4:1(6/10=0.6) 1 2 3 (6)

Total 98,000 32,418 28,000 37,582

Rate per Hour 32,418 28,000 37,582
6,226 4,028 4,066

= = =
5-20 6-95 9-24

TAKKELLA PUNNAIAH CHOWDARY Page 95

19.Maruthi Company has two production departments X and Y and three service

departments time-keeping, stores and maintenance the departmental distribution

summary the following expenses for july-2003.

Production department Total

X 12,000

Y 8,000 20,000

Service department

Time keeping 2000

Stores 2500

Maintenance 1500 6,000

26,000

Other information relating to this department

Production dept. service dept.

X Y Time keeping Stores Maintenance

No. of employee 20 15 10 95

No. of stores requisition 12 10 -- --- 3

Machine hours 1200 900 -- --- ---

Apportion the cost of the service department to production departments X and Y.

Step distribution

Expenses Allocation Amount Distribution Distribution Distribution Total
maintenance
Time Keeping 8:5:20:15 Time keeping Stores 15,423
Stores 3:12:10 (2,048) 10,577
2,000 (2,000) 1,230
Maintenance 1200:800 818
X 2,500 334 (2,834)
Y
1,500 208 340

12,000 833 1,360

8,000 625 1,134

Total 26,000 26,000

20.A manufacturing Company has two production departments X and Y and three service

departments time-keeping, stores and maintenance the departmental distribution

summary the following expenses for oct-2003.

Production department Total

X 16,000

Y 10,000 26,000

Service department

Time keeping 4000

Stores 5000

Maintenance 3000 12,000 39,000

Other information relating to this department

Production dept. Service dept.

X Y Time keeping Stores Maintenance

No. of employee 40 30 20 16 10

No. of stores requisition 24 20 -- --- 6

Machine hours 2400 1600 -- --- ---

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Apportion the cost of the service department to production departments X and Y.

Step Distribution

Expenses Allocation Amount Distribution Distribution Distribution Total
maintenance
Time Keeping 16:10:40:30 Time keeping Stores 23,459
Stores 6:24:20 (4,096) 14,541
4,000 (4,000) 3,072
Maintenance 2400:1600 1,024
X 5,000 667 (5,667)
Y
3,000 416 680

16,000 1,667 2,720

10,000 1,250 2,267

Total 38,000 38,000

21.Estimates of factory overheads to be incurred by each department in the forth coming

years of Deccan manufacturing company ltd. Follows along with the data required for

distribution.

Department Factory over Direct labour No. of Area in

Head hours employees Sq.

Production: X 1, 93,000 4,000 100 3,000

Y 64,000 3,000 125 1,500

Z 93,000 4,000 95 1,500

Service: P 45,000 1,000 10 500

Q 75,000 5,000 50 1,500

R 1, 05,000 6,000 40 1,000

S 30,000 3,000 50 1,000

The overhead costs of the four service departments are distributed in the same order. P,

Q, R and S respectively on the following basis:

Department Basis

P --- Number of employee

Q --- Direct labour hours

R --- Area in square metres

S --- Direct labour hours

You are required to prepare a schedule showing the distribution of overhead costs of the

four service departments to the production departments.

Step Distribution

Expenses Allocation Amount p Q R S Total
Service
Dept 10:8:10:20:25:17 45,000 (45,000) (80,000) (1,33,000)
6:3:4:3:4 75,000 5,000 24,000 19,000 (66,000)
P 2:6:3:3 1,05,000 4,000 12,000 57,000 24,000 3,00,000
Q 4:3:4 30,000 5,000
R
S 1,93,000 10,000 16,000
Production
Dept
X

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Y 64,000 12,500 12,000 28,500 18,000 1,35,000

Z 83,000 8,500 16,000 28,500 24,000 1,60,000

Total 5,95,000 5,95,000

MACHINE HOUR RATE:

1. Compute machine hour rate from the following data.

Electric power -- 0.75 paisa per hour

Steam -- 0.10 paisa per hour

Water -- 0.12 paisa per hour

Repairs -- Rs-530 per annum

Rent -- Rs.270 per annum

Running hours-- 2000 per annum

I. Original cost of machine Rs.12,500 /-

II. Replacement value Rs.10,200

III. Depreciation 7 ½ % per annum

Working note:

Asset value = cost of machine+ replacement value = 12,500 + 10,200 =22,700

Depreciation = 71/2%

= 22,700 X 7.5= 1,687-50

100

Rate per hour = 1,687-50 =0-84

2,000

Machine rate per hour

Particulars Amount

Electric power 0-75

Steam 0-10

Water 0-12

Repairs 530 0-265

2,000

Rent 270 0-135

2,000

Depreciation 0-84

Rate per Hour 2-21

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2. Calculate the machine hour rate of machinery with reference to the following items;
I. Purchase price of the machinery Rs.90,000/-
II. Installation charges Rs.10,000/-

III. Life of the machines 10 years.
IV. Annual working hours 2000 hours
V. Repair charges 50% of depreciation.
VI. Consumption of electric power.
VII. Lubricating oil at Rs .20/- per day of 9 hours.
VIII. Consumable stores at Rs.20/- per day.
IX. Wages of machine operator at Rs. 40/- day of 8 hours

Working note:

Asset value = cost of machine+ installation charges = 90,000 + 10,000 =

Life of the machine 10

= 1, 00,000 =10,000 10,000= 5-00
10 2,000

Depreciation per hour = Depreciation =
Working hours =

Repairs 50% of depreciation = 10,000 X 50/100= 5,000

Repairs per hour = 5,000 = 2-50

2,000

Machine rate per hour

Particulars Amount

Depreciation 5-00

Repairs 2-50

Lubricant oil 20/8 2-50

Consumable oil 20/8 2-50

Wages 40/8 5-00

Rate per Hour 17-50

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Unit-v

. Contract Costing

Contract account

Dr Cr
Amount
Particulars Amount Particulars
To Direct Material XXXX By Work –In –Progress XXXX
XXXX
To Direct Wages XXXX Work Certified xxxx XXXX
XXXX
To Direct Expense XXXX Work un Certified xxxx XXXX
XXXX
To Indirect Expenses XXXX By Material Returned XXXX

To Plant& Machinery XXXX By Material Loss

To Sub Contract Cost XXXX By Material At Site( Closing)

To Extra Work Done XXXX By Plant Returned

To Provision For Contingencies XXXX By Plant Loss
To Opening Work –In –Progress XXXX By Plant& Machinery (Closing)

By Notional Loss XXXX
XXXX
To Notional Profit XXXX
XXXX

To Profit& Loss A/C XXXX By Notional Profit XXXX
To Reserve A/C XXXX XXXX
XXXX

1. The particulars are contract started on 1.1.2007 are given below.

Material purchased 10,000

Material in hand 500

Direct wages 15,000

Plant issued 5,000

Direct expenses 9,000

Contract price 1, 50,000

Contract completed in august 2007. Contract price is received on the same date. Charge 15% on

wages towards in direct expenses; provide depreciation 1,000 on plant.

Contract account for the year ending 31-8-2007

Dr Cr

Particulars Amount Particulars Amount

To Direct Material 10,000 By Contractee A/C 1,50,000

To Direct Wages 15,000 By Material In Hand 500

To Direct Expense 8,000 By Plant 4,000
To Indirect Expenses 1,250 (5,000—1,000)

15,000 X 15

100

To Plant 5,000

To Profit& Loss A/C 1,14,250 1,54,500
1,54,500

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