STAR ENGINEERING COMPANY

STAR ENGINEERING COMPANY

FOUR PRODUCTION AND THREE SERVICE DEPTS



NO FORMAL ACCOUNTING SYSTEM FOLLOWED



PRICES FIXED ON WHAT MARKETS COULD BEAR



INVENTORY VALUED AT 90% OF MARKET PRICE

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WITH 10% PROFIT MARGIN

 STAR ENGINEERING COMPANY
RECEIVED ORDER FOR SAMPLE TRANSFORMER


NO COMPARABLE MARKET PRICE AVAILABLE

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DETAILED COST SHEET REQUIRED BY



GOVERNMENT

DIRECTLY ASSIGNED AS MANY EXPENSES TO



PRODUCTION DEPARTMENTS

SOME COMMON COSTS ALLOCATED TO VARIOUS



DEPARTMENTS ON SOME RATIONAL BASIS

 STAR ENGINEERING COMPANY
COMPLETION OF OVER HEAD COST DISTRIBUTION


SHEET

CALCULATION OF OVER HEAD COST FOR FOUR



PRODUCTION DEPARTMENTS

DO YOU AGREE WITH :-



PROCEDURES ADOPTED BY THE COMPANY?

CHOICE OF BASE FOR OVERHEAD ABSORPTION ;

LABOUR HOUR RATE?

 EVALUATE COST ACCOUNTING SYSTEM ADOPTED

MANUFACTURING OVERHEADS-APRIL
INDIRECT LABOUR & SUPERVISION INDIRECT MATERIALS & SUPPLIES

MACHINING 2,200

MACHINING 33,000
FABRICATION 1,100

FABRICATION 22,000
ASSEMBLY 3,300

ASSEMBLY 11,000
PAINTING 3,400

PAINTING 7,000
MAINTENANCE 2,800

STORES 44,000
TOTAL 12,800

MAINTENANCE 32,700
TOTAL 1,49,700
MANUFACTURING OVERHEADS-APRIL
OTHER EXPENSES


FACTORY RENT 1,68,000

DEPRECIATION 44,000

BUILDING RATES & TAXES 2,400

WELFARE EXPENSES 19,494
(@ 2% of Direct Labour Wages,Indirect Labour & Supervision)

POWER 68,586
(Maint 366/-,Works Office 2,220/-, Balance to Producing Departments)

Works Office Salaries, Exp 1,30,260

Misc Stores Dept Expenses 1,190
TOTAL 4,33,930
CALCULATIONS
TOTAL CHARGE RECOVERABLE

(A) DIRECT MATERIAL COST- 487.92

(B) DIRECT LABOUR COST - 460.10
(C) OVERHEADS
MACHINING - 50 X 2.38 = 119.00
FABRICATION - 40 X 3.39 = 135.60
ASSEMBLY - 20 X 1.60 = 32.00
PAINTING - 20 X 2.39 = 47.80
TOTAL OH = 334.40
(D) FIXED FEE = 200.00
TOTAL CHARGES(A+B+C+D) = 1482.42
 QUESTIONS
Q3(A). Procedure for distribution of overhead
costs.
COMMENTS
 Welfare expenses should have been distributed
depending upon no. of personnel
 Stores dept. cost should have been distributed
on basis of no. of requisitions
 Maintenance dept cost should have been
distributed on basis of labour hours/machine
hours
 QUESTIONS
Q3(b). Choice of base for overhead absorption
COMMENTS
 For machining and fabrication should have been
machine hours
 For polishing and assembly labour hour, if labour
intensive .
 SUGGESTIONS

 The operation data must have more parameters

like no. of personnel, machine- hours, no of
requisitions for better appreciation.
 The overheads are 35% of prime cost which is
fairly high and needs to be reconciled whether it
is on account of operating inefficiencies or
accounting error.
 Predetermined/estimated rates need to be
compared with actuals to assess correctness.
QUESTIONS,COMMENTS AND
SUGGESTIONS ARE
WELCOME

WARNING
THIS IS NOT THE FIRST PRESENTATION & NEITHER THE LAST, SO THINK BEFORE ASKING.