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OVERHEADS
PRACTICAL

1. An engineering concern is divided into four departments. A, B, and C are Production

Deparyments and D is service Department. The Actual Costs for a period are as follows:
Rent
2000
Power
Repairs to plant
1200
Supervision
Depreciation of plant
900
Fire insurance
Lighting
800
Workers Insurance
The following information is available in respect of the four departments:

1800
3000
1000
300

Particulars
Dep A
Dep B
Dep C
Area in Sq. Meters 150
110
90
Kilowatt hours
2400
1800
1200
Number of
20
15
10
employees
Total wages (Rs.)
6000
4000
3000
Value of plant
24000
18000
12000
(Rs.)
Value of stock
15000
9000
6000
(Rs.)
Apportion the cost for the various departments on the most equitable basis.
[Ans. Dep A: 4430, B: 3220, C: 2270, and D: 1080]

Dep D
50
600
5
2000
6000
--

2. ABC Ltd. has three production departments and four dervice departments . the expenses
for these departments as per Primary distribution Summary are as follows:
Production Depts:
Rs
Rs
A
30000
B
26000
C
24000
80000
Service Depts:
Stores
4000
Time keeping and Accounts
3000
Power
1600
Canteen
1000
9600
The following information is also available in respect of the production departments:
Particulars
Horse Power of

Dept A
300

Dept B
300

Dept C
200

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Machine
Number of Workers
20
15
15
Value stores
2500
1500
1000
requisition in (Rs.)
Apportion the costs os service departments over the production departments.
[Ans. Dept A: 34200,Dept B: 29000, Dept C: 26400]
3. Suppose the expenses of two producton departments A and B and two service
departments X and Y are as under:
Department
X
Y
A
B

Amount
2000
1500
3000
3200

Apportionment Basis
Dept Y
25%
-

Dept A
40%
40%

Dept B
35%
60%

[Ans.: Dept A: 4600, Dept B: 5100]

4. Service departments expenses:
Boiler House
Pump Room
Total

Rs.3000
Rs.600
Rs.3600

The allocation is:

Particulars
Boiler Room
Pump Room

Production Dept A
60
10

Production dept B
35
40

Boiler House
50

Pump House
5
-

Allocate the expenses as per Simultaneous rquation method

[Ans: Dept A-2108, Dept B: 1492]
5. ABC ltd. is a manufacturing company having three production departments A, B and C and
Two service departments X and Y. The following is the budget for december 2005:
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Particulars
Total
A
B
C
X
DM
1000
2000
4000
2000
DL
5000
2000
8000
1000
Factory rent
4000
Power
2500
Depreciation
1000
Other OH
9000
Additional information
Area (sq ft)
500
250
500
250
Capital value(in lacs) of
20
40
20
10
assets
Mahine hours
1000
2000
4000
1000
Horse power of machines
50
40
20
15
A technical assessemnt of the apportioment of expenses of service departments is
under:
Particulars
A
B
C
X
X
45
15
30
Y
60
35
5
Required:
i.
A statement showing distribution of overheads to various departments.
ii.
A statement showing re-distribution of servious departments expenses to
production departments.
iii.
Machine hour rates of the production departments A, B and C.

Y
1000
2000

500
10
1000
25
as
Y
10
-

[Ans.: Dept A: 8482, Dept B: 6505 and Dept C: 7513, MHR of A- 8.48, B: 3.25 and
C: 1.88]
6. Modern Manufactures ltd. have three Production Departments P1, P2 and P3 and two
service departments S1 and S2 details pertaining to which are as under:
Particulars
DW
Workig Hours
Value of Machines
HP of Machines
Light Points
Floor Space (sq ft.)
The following figures

P1
P2
P3
S1
3000
2000
3000
1500
3070
4475
2419
60000
80000
100000
5000
60
30
50
10
10
15
20
10
2000
2500
3000
2000
extracted from the Accounting records are relevant:

S2
195
5000
5
500

Particulars
Amount
Rent and Rates
5000
General Lightning
600
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Indirect Wages
Power
Depeciation on Machines
Sundries
The expenses of the Service Departments
S1
S2

P1
20
40

P2
30
20

1939
1500
10000
9695
are allocated as under (in%):
P3
40
30

S1
10

S2
10
-

Find out the total cost of product X which is processed for manufacture in Departments P1,
P2 and P3 for 4,5 and 3 hours respectively, given thet its Direct Material Cost is Rs.50 and
Direct Labour Cost is Rs.30.
[Ans.: P1: 8787.16, P2.: 8504.87, P3.:11441.79 and RPH P1-2.86, P2-1.90 and
P3-4.73]
7. A machine costing Rs 10000 is expected to run for 10 years. At the end of thisperiod its
scrap value is likely to be Rs.900. Repairs during the whole life of the machine are
expected to be Rs.18000 and the machine is expected to run 4380 hours per year on an
average. Its electricity consumption is 15 units per hour, the rate per unit being 5 paise.
The machine occupies one-forth of the area of the department and has twopoints out of
total of ten for lighting. The foreman has to devote about one sixth of his time to the
machine. The monthly rent of the department is Rs.300 and lighting charges amount to
Rs.80 per month, The foreman is paid a monthly salary of Rs.960. Find out the machine
hour rate , assuming insurance is @1% p.a. and the expenses on oil, etc are Rs.9 per
month.
[Ans.: MHR-Rs.-2.104]
8. Calculate Machine Hour Rate from the following particulars assuming that no current is
consumed during setting up time:
Cost of Machine
Rs.200000
Estmated Life
15000 hours
Estimated Scrap Life
Rs.5000
Estimated Working hours per annum
2200
Estimated Hours for maintanence etc
200
Machine setting uptime 5% of production time
Power
5 units @ Rs.4 per unit per hour
Cost of reapirs estimated per annum
Rs.15000
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Number of operators (looking after three
machines also)
Wages per operator per month
Chemical necessary for operating the
machine
Overhead chargable to the machine (per
month)
Insurance Premium ( Per Annum)

2
Rs.3000
Rs.2000 p.m.
Rs.4000
1% of cost of machine

[Ans.: MHR-85.50]
9. A machine shop of an engineering factory has three cost centres have distinct sets of
machines. The following are the details available to you for the year ended 31 st
March,1998 ( Rs. In lakhs)
Value of Assets:
Centre A
4.00
Indirect Wages
0.28
Centre B
5.00
Insurance
0.15
Centre C
6.00
Repairs
0.60
Direct Wages
Centre A
0.50
Power
0.15
Centre B
0.40
Labour Welfare
0.42
Centre C
0.50
Misc Expenses
1.40
Estimated working hours 16000 for Centre A, 13000 for Centre B and 15000 for Centre C.
Work out Composite Machine Hour Rates for three centres after providing depreciation at
6.25%. The ratio of horse power is 6:4:5 respectively.
[Ans. MHR A-Rs.12.56, B-Rs.13.87 and C-Rs. 14.83]

10.The works cost of certain article is Rs.8000 and the selling price is RS.16000. The following
direct (Variable) selling and distrbution expenses were incurred:
Freight and carriage
800
Insurance
200
Commission
1200
Packing Expenses
200
The estimated fixed seling and distribution expenses for the year were Rs.60000 and the
estimated value of sales for the year was Rs.300000. You are required to ascertain the
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final cost of the article using the method of percentage o sales value to aborb fixed selling
and distribution expenses. Also find out the estimated profit for the year.
[Final cost: Rs.13600]
11.A light engineering factory fabricates machine parts to customers. The factory
commenced fabrication of 12 Nos. Machine parts to customers sepcification and
expensiture incurred on the job for the week ending 21 st August2005 is given below:
Direct Materials (all items)
78.00
Direct Labour (manual) 20 hours @ Rs.1.50 per hour
30.00
Machine Facilities:
Machine No.I: 4 hours @ 4.50
18.00
Machine No.II: 6 Hours @ 6.50
39.00
57.00
Total
165.00
Overheads @ Rs.0.80 per hour on 20 manual hours
16.00
Total Cost
181.00
The overhead rat of Rs.0.80 per hour is based on 3000 man hours per week.Similarly, the
machine hour rates are based on the normal working hours of Machine I and II for 40 hours
out of 45 hours per week.
After the close of each week, the factory levies a supplementary rate for the recovery for
full overhead expenses on the basis of actual hours worked during the week. During the
week ending 21st August, 2005, the total hours worked was 2400 and machine Nos I and II
had worked for 30 hours and 32.5 hours respectively. Prepare a cost sheet fo the JOB for
the fabrication of 12 Nos. Machine parts duly levying the supplementary rates.
[Ans. Cost-Rs.200]
12.In a manufacturing unit, Overhead was recovered at predetermined rate of RS.25 per man
day. The total factory expenses incurred were Rs.41.50 lakhs and man days actually
worked were 1.50 lakhs. 40000 units of a poduct were manufactured during the period of
which 30000 were sold. On analysing the reasons, it was found that 60% of the
unabsorbed overheads were dur to defective planning and the reast were attributable to
increase in overhead costs. How would unabsorbed overheads be treated in cost accounts.
[Ans.Under absorbed Overheads- 400000, 60% of that may be transferred to
Profit and Loss A/c and for balance supplementary rate must be found to charge
to the production.]
13.A factory has three production departments.The policy of the factory is to recover the
production overheads of the entire factory by adopting a single blanket rate based on the

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percentage of total factory overheads to total factory wages. The relevant data for the
month are given below:
Dept

Direct
Material (Rs.)

Direct Wages
(Rs.)

F OH (Rs.)

Direct
Labour Hours

Machine
Hours

BUDGET
Machinery
650000
80000
360000
20000
80000
Assembly
170000
350000
140000
100000
10000
Packing
100000
70000
125000
50000
-ACTUAL
Machinery
780000
96000
390000
24000
96000
Assembly
136000
270000
84000
90000
11000
Packing
120000
90000
135000
60000
-The details of one of the representative jobs produced the month are as under:
JOB No. 7083:
Dept

DM ( in Rs.)

DL ( in Rs.)

Machinery
Assembly
Packing

1200
600
120000

240
360
60

Direct Labour
Hours
60
120
40

Machine Hours
180
30
--

The factory adds 30 % on the factory cost to cover administration and selling overheads
and profit.
Required:
i.
Calculate The overhead absorbtion rate as per the current policy of the company
and determine the selling price of the JOB 7083.
ii.
Suggest any suitable alternative method of absorbtion of the factory overheads and
calculate the overhead recovery rates based on the method so recommended by
you.
iii.
Determine the selling price of JOB 7080 based on the overhead application rates
calculated in (ii) above.
iv.
Calculate the department-wise and total under or over recovery of overheads based
on the companys current policy and the method reccommended by you.
[Ans.: i) 4660.50, ii) Machinery Dept MHR- Rs.4.50, Assembly LHR- Rs.1.40,
Packing LHR- Rs.2.50 iii) 4989.40, iv) under currect policy under recovery
of Rs.39000 and suggested method- over recovery of overheads of
Rs.99000]

SHOP NO.107,RAJMANDIR PLAZA,NEAR DHIRAJ SONS,NR.SURYA

RESIDENCY,VESU,SURAT
Contact info.:-CA MAYUR JAIN:- +91 9724233622
ANKIT JAIN:+91 9714446050