CHAPTER V

DIRECT EXPENSES AND OVERHEAD

SOLUTION TO SELF EVALUATION PROBLEMS
SOLUTION 1
Statement of prime Distribution

Items Total Basis of Production Department Service

Approximate Department

X Y Z 1 2

Rs. Rs. Rs. Rs. Rs. Rs.

Power 1,100 Kwh 400 300 200 100 100

12:9:6:3:3

Lighting 200 Light point 50 80 20 30 20

5:8:2:3:2

Stores 800 Direct 100 200 200 150 150

overheads Materials

2:4:4:3:3
 Welfare of 3,000 Staff 600 900 900 300 300
Staff number

2:3:3:1:1

Depreciation 30,000 Assets 12,000 8,000 6,000 2,000 2,000

number

6:4:3:1:1

General 12,000 Direct wages 2,000 3,000 4,000 1,000 2,000

overheads
2:3:4:1:2

Repairs 6,000 Assets 2400 1600 1200 400 400

numbers

6:4:3:1:1

Rent 550 Area 150 250 50 50 50

3:5:1:1:1

Total 53,650 17,700 17,330 12,570 4,030 5,020

SOLUTION 2

Items Total Basis of apportionment Product Dept Service Dept

 A B C D

Rs. Rs. Rs. Rs. Rs

Rent Area (15:11:9:5) 750 550 450 250

Repairs 1200 Plant value (4:3:2:1) 480 360 240 120

Depreciation 900 Plant value (4:3:2:1) 360 270 180 90

Light 200 Light point (15:11:9:5) 75 55 45 25

Ins. Of stock 1000 Stock value (5:3:2) 500 300 200 -

Employees 300 No. of workers 120 80 60 40

insurance
(6:4:3:2)

Power 1800 H.P (4:3:2:1) 720 540 360 180

Supervision 3000 No. of workers 1200 800 600 400

(6:4:3:2)

Total 10,400 4,205 2,955 2,135 1,105

SOLUTION 3
Statement of Primary Distribution of overhead cost
 Production dept Services
Overhead
Sr. Total Basis of Dept
Expense
No Rs. apportionment A B C D.
.
Rs. Rs. Rs. Rs.

1 Rent 1,000 Area 375 275 225 125

(15:11:0:5)

2 Repairs to 600 Plant Value 240 180 120 60

Plant (4:3:2:1)

3 Depreciation 450 Plant Value 180 135 90 45

of Plant
(4:3:2:1)

4 Light 100 Area 38 27 23 12

(15:11:0:5)

5 Supervision 1,500 Number of 600 450 300 150

Employees

(4:3:2:1)

6 Insurance 500 Stock Value 250 150 100 -

Stock (5:3:2)

7 Power 900 Plant Value 360 270 180 90

 (4:3:2:1)

8 E.S.I 150 Total Wages 60 40 30 20

(6:4:3:2)

Total 5,200 2,013 1,527 1,068 502

SOLUTION 4

Item Basis of Apportionment Production Debt Office Stores Workshop Total

P1 P2 P3 Rs. Rs. Rs. Rs.

Indirect Material Actual 2000 3000 3000 1000 2000 2000 13000

Indirect Wages Actual 3000 3000 4000 10000 10000 5000 35000

Rent Area(Rs.10 per meter) 2000 2500 3000 1500 1000 2500 12500

Insurance Book value of machine 300 350 250 – – 150 1050

 One paise per rupee

Depreciation Book value of machine 4500 5250 3750 – – 2250 15750

15% value of machine

Power HP of machine x machine hr 600 1600 1500 – – 100 3800

Light Area Rs. 1 per sq mt 200 250 300 150 100 250 1250

1260 1595 15800 12650 13100 12250 82350

0 0

Apportionment of Machine Hrs. (2:4:3) 2722 5445 4083 – – –12250

workshop
overheads

Apportionment of Direct Material 3573 4168 5359 – –13100

stores overheads

Apportionment of Direct Wages 3373 4217 5060 –12650

office overheads

2226 2978 30302 82350

8 0
SOLUTION 5
Repeated Distribution Method:

Statement of Secondary Distribution of Overhead.

Items Total Basis of Production Department Service

Rs. Apportionment Department

A Rs B Rs C Rs. P Rs. Q Rs.

Overhead as 42,000 As given 23,000 6,000 6,500 4,500 2,000

per primary

Overhead

Service

Dept. ‘P’ 9,500 4:3:2:1 1,800 1,350 900 (4,500) 450

Dept. ‘Q’ 2,450 3:3:2:2 735 735 490 490 (2,450)

Dept. ‘P’ 490 4:3:2:1 196 147 98 (490) 49

Dept. ‘Q’ 49 3:3:2:2 15 15 10 9 (49)

Dept. ‘P’ 9 4:3:2 4 3 2 (9) -

Total 25,750 8,250 8000

2 Simultaneous equation method:

At first we have to calculate total overhead of each service dept including O.H
chargeable of other dept. Hence assume total O.H of service dept.
‘P’ PS ‘X’ and total O.H of service dept ‘Q’ PS ‘Y’

 The total OH service dept ‘P’ = Actual OH + 20% of Q and total OH service dept

‘Q’ = actual OH + 10% of P

 Total OH of P = 4500 + 20% of Y

= 4500 + y /5

and total OH of Q = 2000 + 10% of X

= 2000 + x/10

But we assumed that total OH of P are ps x and of Q are ps y

Hence we can from equation as under:

X = 4500 + y

Y = 2000 + x

10

and selling these two equations we get the total OH of each service dept as
under.

5 x = 22500 + y (multiplying by 5)

10 y = 20000 + x (multiplying by 10)

Rearranging the equations we have.

5 x – y = 22500

x + 10 y = 20000

Multiply equation no. 2 by 5

We have 5 x – y = 22500
 5 x + 50 y = 1,00,000

49 y = 1,22,500

 Y = 2500

 OH of service dept Q = Rs. 2500

and OH of service dept R = Rs. 5000

STATEMENT OF SECONDARY DISTRIBUTION

Particular Total Basis of Production Department

apportionment

A B C

OH as per 35,500 As given 23,000 6,000 6,500

primary
dist.

OH service

Dept ‘P’ 5,000 40% 30% 20% 2,000 1,500 1,000

% ‘Q’ 2,500 30%30%20% 750 750 500

Total 25,750 8,250 8,000

SOLUTION 6
Statement of primary distribution of OH

Item Total Basis of A B C X Y

 apportionment Rs.

Rs Rs. Rs. Rs.

Direct 3,000 As given - - - 2,000 1,000

Materials

Direct 3,000 As given - - - 1,000 2,.000

Wages

Recovery 4,000 Area 2:1:2:1:2 1,000 500 1,000 500 1,000

Rent

Power 2,500 (H.P x Hrs.) 500 800 800 150 250

10:16:16:3:5

Depreciation 1,000 (Cap Value x 100 400 400 50 50

hrs.)

2:3:#:1:1

Other 9,000 Direct Wages 2,500 1,000 4,000 500 1,000

Overhead
5;2:8:1:2

Total 22,500 4,100 2,700 6,200 4,200 5,300

Statement of secondary distribution of OH

(Repeated Distribution Method)

Item Total Basis of A Rs B Rs. C Rs. X Rs. Y Rs

apportionment

As per 22,500 As given 4,100 2.700 6,200 4,200 5,300

primary
Distribution
of overhead
 service

Deptt. X 4,200 9:3:6:2 1,890 630 1,260 - 420

Deptt Y 5,720 12:7:1 3,432 2,002 - 286 -

Deptt. X 286 9:3:6:2 128 43 86 - 29

Deptt Y 29 12:7:1 19 10 - - -

Total 9,569 5,395 7,546 - -

SOLUTION 7
Calculation of labour hour rate

(a) Factory overheads 11,400

(b) No. of labour hour worked

= No. of worker x working days in a year x no. of hours

per days worked less short and idle time

= (100 x 300 x 8) less 5%

= 2,40,000 less 5%

= 2,28,000 hours

labour hour rate = Factory overheads (a)

no. of labour hours worked (b)

= Rs. 11,400 – 5 paise per hour

2,28,000

Note: Gift to workers will be included in administration overheads and not in

factory overheads.
SOLUTION 8
Computation of Machine Hour Rate

Rs.

Standing Charges per month 50

Running time per month 166

Standing charges per hour 50 0.30

100

Machine expenses

Depreciation Rate per Hour

19,200 – 1.200 = 18,000

10,000 10,000 1.80

Repairs and maintenance 150

166 0.90

Power (5 x 19 Pulse) 0.95

Machine Hour Rate 3.05

SOLUTION 9
Computation of machine hour rate
 Rs. Per hour

Depreciation -

Purchase of machine 90,000

Add: Installation and incidental charges 10,000

Total cost 1,00,000

Life of the machine = 10 years of 2000

Of working hours each i.e. 20,000

Working hours 1,00,000

Depreciation per hour = 20,000 5.00

Repairs charges 50% of depreciation 2.50

Power ( 10 p x 10) 1.00

Other expenses ( Rs. 2 – 8 hour) 0.25

Consumable stores (Rs. 10+ 8) 1.25

Machine hour rate 10.00

SOLUTION 10
(a) Overhead recovery rates

Work OH, Adm. OH, Selling OH, Distribution OH

(1) Direct labour

Hour rate = 88200 = 7.35

Machine shop 12000

Assembly shop = 51800 = 5.18

10000
(2) P.C on works cost = 90000 x 100 = @ 20%

4,50,000 1

(3) P.C on office cost = 81000 x 100 62100 x 100

540000 540000

= @ 15% = @ 11.5%

(b) Cost estimate

Direct materials 25 kg @ 16.80 420

15 kg @ 20 300 720.00

Direct labour machine shop (30 x 5.25) 157.50

Assembly shop (42 x 4.80) 201.60 359.10

Works OH machine shop (30 x 7.35) 220.50

Assembly shop (42 x 5.18) 217.56 438.06

Works cost
1517.16

Administrative OH @ 20% on work cost 303.43

Office cost
1820.5900

Selling OH @ 15% on office cost

273.0885

Distribution OH @ 11.5% on office cost 209.3679

Total cost
2303.0464