Overheads

(Lecture #1)

Overheads

Production
Non-manufacturing
.
Oh

Vot Fott Vo Fot

Direct cost Per unit allocation

objective
1 is and
very easy
.

(DM/DL)

VOH & Per allocation

difficult and techniques
costing
unit is some

Like
High/low method etc will be used to
find rothuit.
Folt
Allocated basis .
arbitrary
> No link to it :
on

Overheads allocation

i) for accounting to
finda stock value.

i) For
pricing
ii) For Decision
Making
 Pricing
DM 10 Sales
fecounting
-

DL 5
Department DM 10

Upon & DL 5

19 Admin Vot 4

FRONT FPOH
22

Sot 5

for
30
Full cost

Markup a
t o

For pricing all of types cost that is manufacturing, non-manufacturing

variable and fixed. All costs are allocated to a single unit in order to
find an appropriate price that would give the company reasonable
profit.

For accounting only manufacturing costs will be allocated to a single

unit. Non-manufacturing costs are expense out immediately as they
are incurred.

Allocation of overheads

① Blanket Rate of
Single/plant wide Rate
systems system
-

Equipment Factory Heating & Power Maintenance Supervision

Depreciation. Rent. Lighting. Cost. Cost. Cost
2000 150000 120000 320000
75000 12508

Cost pool( Total cost of Rs. 990000 collected) : 60000 = 16 5

.

Total labour hours for the company

 Hours per unit Direct cost
&

&

Product x 20 X 16 .
5 = 330 + 670 - 1000

Product y 12 X 16 .
5 = 198 +
482 =
680

Product z 30 X 16 .
5 = 495 + 305 - 800

② Departmental of Rate
System
Equip. Factory Heating & Power Maintenance Supervision
Dep. Rent. Lighting. Cost. Cost. Cost

200000 150000 120, 000 320,000

75000 125000

Department A(cost Departt B(cost Departt C(cost

allocated Rs. 540000) allocated Rs. 270000) allocated Rs. 180000)

Labour hrs. 20000 Labour hrs. 20000 Labour hrs 20000

OAR =

27 OAR = 13 5 . OAR = 9

Hours in
A Hours in B Hours in C Direct cost
Product X 7 .
00 8 .
00 500 67
Product y 12- 00 0 00.
0 00 .

482
Product 0 00. 5 00.
25 00
.
305

u (7x27) + (8x 13 .

5) + (5x9) = 342

(12x27) 324
y
-

= (oxo) + (5x 13 5) + 125x9)

.

= 292 5 .
 ⑧ HoL
-

400
So
X

X 250

X6g

Overheads Allocation basis F G H

Heating lighting
G frea 30008
187560 45000
Depreciation Machine value
480000 920000 300080

Supervision Employees 150050 112550

270000
Power cost Machine hours 2475000198005. 825000
Insurance free
ofBuilding 120050 75000 180000

others
fixed Ous Labour hours 2160008 1200000 1480550
5685550 3975000 3425550
Labour hours 216050 120080 140088

OAR/hour 26-3 33 125

24 46
-
.

Total
offs allocated

A - (8x26 32)·

+ (5x33 + 25) + 0 -
376-185 x 12000 =
-

B (12x 26 ·
32) + 0 +12x 24 46)
.
-
364 76
: x 1000
-

C = 0 + 10x 33125)+ 116x24-46) =

656 3 .
x
7500-
 Lecture 2

Concept ofService Department

Canteen

DI Da D3
MSF

QC
PD PD PD Other deput .

Step #1 Cost allocated

among
all
departments

PD SD

Step# Service
departments costs will be allocated to
production departments
.

Step#3 Find OAR"

for all
production departments

Stepth Allocate all Of to

goods using OAR calculated in
Step3.
 - - - -

Sol fllocation basis A B- Y

=

Rent frea 15000 16800 19200 300 2400

frea 125801900016000 2500 2000

Heating lighting
O

23400 3)1200156005850 1950

Machine
depreciation
MachineValue

Supervisory wages 10000 25000 4000 3550

of 20000
No .
workers

power cost Machine hour 29600 40000 3848 4000 8008

98508 122006
114208 19350 17350
Reallocation (19350)
of X 9675 5805 3870
Reallocation 3470 6940 6940 (17350)
of Y
111645 134795 125018 - -

Labour hours 44622 26836 50266

GAR . 50
2 502
.
2 49
.
.
Repeated distribution Method

Inter-service
department cost allocation

A B C X Y
Cost 500 600 300 50 80

Cost allocation 30% 20% Got 10%

Cost allocation 40% 20 % 20% 20%

A B C X Y
Cost allocated 580 600 300 50 80

Reallocation 15 (50)
of X 10 20 5

575 610 320 -

85

Reallocation 34 17 (85)
of y 17 17
549 627 337 17
-

Reallocation 5 7 (f) 2
of X 3

554 630 344 -

2

> T ↑

his his has

OAR ~ ~ ~

Do
single digit
this till
 Simultaneous Equation Method

A BC X Y
Cost 500 600 300 50 80

Cost allocation 30% 20% Got 10%

Cost allocation 40% 20 % 20% 20%

A B 2 X
Y
Cost 500 600 300 50 80

Reallocate 20 20 26 92 (67 34) 6 73

ofse 47
.
13 . . · .

Reallocate 34 70 17 34 17 34 17 34 (86
73)
ofy
. -
. . -

554 9 . 630 81 .

344 26 .
- -

x 50 20 %
y
= +

80 10% v
y
= +

u = 50 + 20 % (80 + 10x)
u = 50 + 16 + 2%

x =
67 34 .

00 10 % (67 34)
y
= + -

y = 86 .

73
 (Lecture#3)

②
PDA PDB PBC X
Y
Cost Sor 7oo 900 40 70

Reallocation
R 20 % yo 301- 10%

50% 20 % 10 % 20 %
Y

x 40 20 %
y
+
=

y
10% 1
=
70 +

x = 40 + 20 % (70 + 10 % x)
n 90 + 2% V
19
=
+

n = 55

x 35
y 70 10 %
= +

755
y
=

Complete this Question

8
A B C X
Y
OH cost 56000 50000 38000 16500 10 top

Reallocation 3850 5700 (19000)

a
of 7600 1900

Reallocation 2500 2550 (12500

off
5000 2500

64800 60100 46200 -

n 16500 20 %
y
= +

10600 + 10 % R
y
=

u = 16500 + 201. (10600 + 10n)

2 = 16500 + 2120 + 2% x

n = 10620 + 2% n

n = 19, 000

10600 + 10 % X 19, 000

Y
=

12500
y
=
 So
A B Y Z

O It cost 6000 8000 3630 2000

Reallocation 1800 (4500)

of
1800 900

Reallocation 500 1450 870 (2900)

&
8380 11250 - -

3630 + 30 % Z
y
=

z 2000 + 20%
y
=

y
=
3630 + 30% (200 + 20 %

600
y)
3630 + + 6%
y y
=

458
y
=

z = 2000 + 20 % x4500
- 298
 Concept

Revised OAB
Case
after bringing a New Machine

Factory
his: 9000/year
M1 M2 M3
Maintenance = (300) 100X3

New Machine
(240)
Setup = 80X 3

Total productiveis 84E0

OAR = 310

2622600
Budgeted OH = 8460X310 =

hus =
700 Additional depreciation -
400000
(150)
Electricity
Maint =
= 600000

Setup
Loss as
200880
operators
= =

other OHS -
18500

130880

Revised OAR
of company

-2622650
+13000
=
32140 Blanket. as
S
12500

Idle (900)

11600 x 390
4524000 Of
existing
=

machine
New =
853000

5377080

Revised
=577000-300
Ar =

Depreciation (10000x11) 110000 * 1300000 -

100000 = 1200000 + 120000

10 12
(2400X85)
Electricity
Maintenance (25000x11)
204000
275000 =
10000/month
Parts replacement (10000x1) 110008

Operator 19000 X11) 99000

wages
Other Of (5000X11) 55080

853850
 2024 Question

200000 - 120, 000

10

Sol
=

Old machines

2x2500 I
5000

450 =3x2 = 1300)

Effective hours
of old machines = 4700
OAR I 850

Existing
OHS = 3995000

New machine hours 2500

Idle hours (190)

Effective hours 2310

Depreciation 120000

(2310 x 180)

Electricait
415800

maintenance 200000

Indirect Labour cost 50000

Manager's Salary (30000X12) 360000

1145800

Revised OAR = 3995000 +

,

1145800
4700 + 2310

= 733 35 .
 /Lecture # 4)
Concept
Different allocation basis

PD A .

PD B .
PD . C

Overheads 500 400 for

=

Machine hours 58 70 =
70

Labour hours 20 160 50

OAR 10/m . hour 25 .

/labhu 10/Machr

material consumed basis

R 5) Machine hours X 10 = 50

y 2 Machine hours X 10 = 20

Z 3 Machine hours X 10 =
30

Dept-
Safai Rs 500000 = 5000000
.

- 0 .

1/rsofmaterial

A Bu
Material 2000000
Budgeted
1000000 2000000

Overheads 200000 100000 200088

S
A B C

Skilled hours Goo 36000 14000

400 488 400
Hourly
rate

Skilled labour cost 24000000 14400 ,000 56000000

60088
Unskilled hours 90 , 000 400
120 120 120
Hourly
rate

Unskilled Labour cost 10000000 7200000 4800050

Labour cost 3480000 + 21600000 + 60000000

Total Labour cost = 117200000

Overheads F 3)760000 =
30% = OAR

117200050

A - 34800000 X 30% = 10440000 : 15000 =

700/mit
B = 21600000 X 30% = 6480000 : 12000 -
540/mit

C =
60000000X30% = 1824000 + 20000 =
912/mit
②
Product A 5
Si cost
/ Induct S [235ste
.
3 .

Material zolmit S
Sid
Direct ·

Ex-factory cost

Direct Labour 10/ mit

Prime cost 38

POH (30% /DL) 54

Ex-factory cost 93 7 .

Dm)
Admin OH (20
% a

Full cost 47 4 .

20% .5
9
Markup
SP.
56 9 .

Product - -

Direct Material 65000

Direct Labour 15000

POH (50% of DL) 7500

Admin o selling 26000

140%
of DM)
Full cost 113500

Markup (25% ofT C) 28375

.

(113500X0 .
25)
Sp
11875
 Product X Product Y
D .
Material 2000 4500

D Labour.
6000 4508

POH (50% of DL) 3000 2250

Admin (25%
ofDM) 500 1125

11500
12375
Profit (20% ) 2308 2475
SP 13800 14050
10)
② spalling %

A
of this question was

B
less than

Sp 13800 14850
DM 2000 4580
6000
DL 4500

Post
of DL
are a %
·

folt %
of DM
are a

Profit 20% of Total cost

Find POHY and Admin ot/ dimultaneous
Equation
using
.

A B

Sp 13800 : 1 2 -

14850 = 12
.

Profit (2300) (2475)

Total cost 11500
12375
known costs

DM (2000) (4500)
DL (6000) (4500)
Pot +folt 3500
3375
 pot+ for 3500
6000
=
- 1 33
.

60002 + 3500
2000 y
=

45004 +
958y =
3375
X 1 .
333

6000dHorry
6000K
-
4500
2000y = -- 3500

4000 y
= 1000

y to
-

= 25%

60002 + 2000 X0 .
25= 3500

6000K - 3500 -
500

=
R

= 50 %

A B

Sp 54125= 1 25 .

61667X0 25
.

(10825) (1546)
Profit
43308 46250

known cost 16000d + 15000 12300

y
-

(16000) (12500)
DM 12500 R +
20000y 13750
DL (15000) (20000)
30 %
Poo 12300
13750 U = 7
pot

y = 50% >
fot
 (Lecture #5)

Over/under Absorption

Day 1
Bug 000
f
it is

DM 50

DL 40
OH 12 5
:

102 5 .

Profit 17 5
.

120

365hDoy
Actual output =
,

15 000

X12 5.

Recovered Fo =
187500
Actual Fo = 120500)

Under recovered Fol =

(17500

Sept
2022 2023

00030 500 t
33

Steph
14800x30 = 444000
17200 x 33 =
567688
fatual =
(465200) fatual = 150 2000)
-

Under recovered (21200) Over recovered 65600

 I
X 20-60/mit
xzu =
4 0/mit

S
ha
20

-00000
=

Applied
A B

Units 6588 4650

otR/unit 60 48

Applied FOH 39008 223200

Actual
Depreciation 82500
67550
Maintenance 130000 70000
Insurance 98050 42000
Building related 104000 56500
j
Applied For 41450 235570

Fol
Budgeted 39008 223200

(24500) (12300)
=> FoH
Budget
: Units

X Actual output =
Recovered Fol
OAR

A fetual
B
PD1 PD2 PD3 Output
C

OAR OAR OAR

Day-I
Budgeted Fott

PD1 PB2 PD3

OAR OAR OAR

Product
A

Actual output B
=
Recovered Fort
C

futual Fort

PDC OR OAR
PD3

OnR
faul output =
feel For
 teuel

Applied
Shine Glow
Actual output 100000 60000

OAR/unit 1800
1700
Recovered/Applied Fot 100000 102000

Actual Fol (175000) (105000)

Over-Applied 5000 Under-Applied (3000)

A B X Y
) 69000 11500 11500

Salary(Emene)
23000

50000 30000 - -

Building (Area)
125000 5000 5000 250

(Area) 12000 God

Electricity
30000 12000

161500 70000 28500 20000

Reallocation (20000)
Fy
o 15000 3000 2000

Reallocation (30500)
qu 24480 6180

Actual For 200900 79100 - -

ActualShine Fot (125563 + 49437) 175000

Shin St Go063 fatual Glow Fott (75337 29663)

+ 105000
 Higher is Much hour
-
~
> But Labour hour basis is mentioned

AB 22000 Machine hours X1 =

22000

Ac 12000 Machine hours X1 5-

-

18000
40008

90
100
X22 =

S
00
x8 = 800

A B X
Y
Rent (Area) 1250 938 187 125 2000 X 22000

3400
Fuel (M- hrs) 990 810 - -

Dep (Mac hus) .

1294 706 2000 X 12000

34588
Electricity (Area) 550 412 82 55

4004 2066 269 180

Reallocation (305)
of 6
R 122 122

Reallocation 108 96 36 (241)

Fy
o

4314 3004 - -

Hours 22000 10000

OAR 300
196 .

x 269 + 15%
y
=

180 201
y = +

n = 305

241
y
=
 Lecture #6)

#March-
24

Sol
-

A B X Y

Already allocated of 105000 85000 30000 20000

Common Overheads (Area) -

24000 1 000
2 5000 3000

129000 106 ,000 35000 23000

Reallocation 17508 19000 (35000) 3500

of
196500 120000 26500

Reallocation (26500)
of y 11925 10600 3975
158425 130600
3975
-

Reallocation
of se
1987 1590 (3975) 396

160412 132190
-
396

Reallocation 178 158 59 (396)

Y
160598 132348 59 -

Reallocation 29 23 (59) 6
of 160619 132371

17
go
hos as

Machine
②
2023

OAR/mit =
50

(Max 50000)
Budgeted output =
90000
capacity
-

fetual output = 41, 000

Under-recovered OH =
25000

Required
Budgeted , Applied & futual Fort

otR-aged
2023
2024 i) Overtime = 200,000

Budgeted Fort
2000000
-
> 2075000 + 600000 ii) Electricity bill = 500
, 000 -

Budgeted opp 40000 -

40000 ii) Stock Stolen = 3000000

OR 58 51 07
.
Insurance #0000)
Actual opp
X

41000 50000 100000

Absorbed > 2050000 2593750 overheads (500000+ 100000

fitual Fott 2075000 (2050000 + 25000) 2675000 -600000

Over/(under) (25000) (81250)

 50000
&
500
=
-

year's Actual
Fort
FOH
Budgeted
Prio > Next
year
-

>
-

* 150000
·
S or
GS
Cover-applied) %556 034)
**
(under-Applied)
Recovery <E S&
. With i) a

Cover-Applied) -
% So 9. . Overheads

(under-Applied Let (i) * of

Assume 1 Machine Hour

produces 1 unit.

& Last
year Current
year
9220000
Budgeted
Fot 9000000 + 300000 + 200000

45000
Budgeted op 45000
OAR 200 204 89 .

fatual op 44000 50000

AppliedFot 8000000 10244000

Actual FOH 9220000 9720000 L

under/over-applied (420000) 524000

(A) *In point one over production would result in over recovery of overheads. However, no cost is increasing in point one overall point one is
-

resulting in our application of overheads.

*In point two actual factory overheads are increasing and no change in application/recovery of overheads. This will result in under application of
overheads.

*In point number three actual overheads are increasing with no corresponding change in recovery of overheads as a result under recovery of
overhead would result.
 Important concept

M1 M2 M3

A 625 500 875

Hours
for
(0 .
5x 1250) (0 %x1250)
.
(0 7X 1250)
.

Hours
for B 270 360 450

(90x0 3) .

(900x0 %) .

(900X0 5).

Machine hous 895 860 1325 -

3000 Total Machine Hours

X3 X2 X3

Operator
hour
26851720 3975

(KWH) 33125
Electricity 13425

(095x15)
17208
(800 x 20) (125X25)
 (Lecture #f)

I L 3

Hours
for A 900 750 1200

Hour
for B 400 366 720
Machine hours 1380 III0 1920

operators 4 3 2

hours 5520 3330 3848

operator
22
Electricity consumed per
Mach hour 10 18

KWH 13800 + 19980 + 42240 = 76020

Electricity 76020
=
2128500 = = 28

Others -> 1903500 : 12690 = 150

↓ 2 3

Cost 306400 559440 1182720

Electricity (13800x28) (19900x22) (42240x28)
Other cost 828, 000 499500 576000
(5520 x 150) (3330x150) (3040x150)
TotalOfs 1214400 1058940 1758720
Machine hours 1300 1110 1920

888
OAR/Machine hour 954 916
 1 2 3

840 720
for A
Hours 600

160 240
zaro
Hours
for 320

Machine hour 960 920

800
1000

hours 2000 2880 3680

Operator
12000 44000
KWH f 14400 t 1840 =

1 2 3

(kwH) 700000
Electricity
936000 1196000

others Cop hour)

-
1000000 1440000 1840008
Total allocated overheads
1700000 2376, 000 3036000

Machine hours 1000 960 920

OAR/Machine hour 1780 2475 3308

*

&

* 264X00%

MH = X hoo
FA
DM
X 3000

* 53 X100
X -

1708
X 400
X 300

Sol ( RS in 000 (
-

Machine
Assembly Finishing Maintenance

Indirect Labour 46 27 36
137
Indirect Material 60 18 36 91

Power (Machhous) 913 21 31 -

(Floor area 23 & 7 7

Heating light (Mach-value)
O

25
Depreciation 62 9 12

Ront (Floor freal 57 23 if 17

(Direct Material) 83 4
Warehousing
Il -

752 133 148 264

D
Allocated on the basis
Reallocation 00% cost 188 9 14 (211) )

of
=

of Machine
hours

*
felocated the basis
Reallocation (53)
on

20% cost 12 9 =
of
31
of Floor Area
.

971 155 164

-

Allocation basis Machine hours Labour hours Labour hours

8000
Hours 40000 16000

OAR 24 .
3 19 3 .
10 L .

Direct Material Direct

and Labour costs
of service
departments are treated as overheads

For production departments.

 Indirect (Allocation basis)
X
wages

"Production
~

Direct hours
wages
↓ (Both)
By sir

-
-

S
Selection Jam Distribution
making Bottling Storage
Direct 8000 20000
Wages
Rent (Floor Area) 20400 27200 17000 13600 6000

wages 24000 9600 2400 6000

Indirect (Direct 10000
wayes
Lighting (light points)
12500 25000 6250
18750 12500

Power (KWH) 15000 90000 30000 15000 -

Depreciation (Machine value 15000

10008 20000 5000 >
-

7590 186200 90350 50250 45300

Reallocation 5025 15075 20100 (50250)
of N 10050

Reallocation of 11070 27675 16605 (55350)

f
-

Total Ofs 91995 228950 127055 - -

Hours 1533 3577 1815

OAR/Hour 60 64 to

D -
material 36

D
. Labour 25

Of

"
A 10 .
1 X 60 6

B (0 25/64.
16

C (0 .
15 x 70 10 .
5

93 5X12
Cost/Bottle 1122 cost
of each Carton
.