1. Factory Overheads-Case Study
Cost Accounting-I
Factory Overheads-Case Study

2. Steps in Allocation of Factory Overheads
Factory Overheads Allocation and Apportionment of Overheads
Steps in Allocation of Factory Overheads
Allocating to Cost Centers
STEP I
(Primary Allocation)
Allocating to Production Cost Centers
STEP II (Re-Distribution)
Allocating to Cost Unit
STEP III (Costing Methods)

3. Factory Overheads Allocation of Overheads- Primary Distribution
Step I: Primary Distribution-Distribution of items of overheads that can not be attributed to cost centers is called primary distribution. Step II: Secondary Distribution-Re-Distribution is a process where service centers costs are transferred to production centers.

4. Factory Overheads Allocation of Overheads-Secondary Distribution
Methods of Secondary Distribution
Direct re-distribution method (No service between service cost centers)
Step ladder method (Non reciprocal service between service cost centers)
Simultaneous Equation method (Reciprocal service between service cost centers)

5. Factory Overheads Allocation of Overheads- Case Study
Indirect costs of A manufacturing company’s cost allocation sheet is presented below.
Cost Allocation Sheet
Cost Centers/Costs
Production Department
Service Department
Knitting (Örgü) 
Coloring (Boyama)
Maintenance & Repair
(Bakım-Onarım)
Generator (Jeneratör)
Heating (Isıtma)
Total Cost
Direct Material
48.000
57.000 -
Direct Labor
37.000
38.000
75.000
Factory Overhead
- Indirect Labor (Premium) ?
43.000
- Utility (Electricity)
27.000
- Depreciation (Factory Building)
30.000

6. Factory Overheads Allocation of Overheads- Case Study
The allocation keys for primary distribution related with indirect costs are as follows:
Knitting
Coloring
Maintenance & Repair
Generator
Heating
Total
Staff Number
4.700
4.025
1.500 25
500
10.750
kwh
4.500
4.000
2.500
3.500
15.000 m2
8.000
7.000
1.600
1.000
2.400
20.000
Maintenance Hours
1.800
200
600
300
Indirect labor cost will be distributed according to staff number, utility according to electricity consumption (kwh) and depreciation cost according to m2.
The costs are apportioned according to Step Ladder Method. First apportioned center will be chosen according to Total Cost. Maintenance and Repair according to maintenance hours. Heating according to m2 Generator according to kwh.
Required: Do the primary and secondary distribution of indirect costs.

7. Factory Overheads Allocation of Overheads- Case Study
ABC Manufacturing Company has Maintenance & Repair and Infirmary (Revir) service cost centers and Assembly and Machinery product cost centers. The costs allocated to cost centers are as follows:
Cost Allocation Sheet
Cost Centers/Costs
Production Department
Service Department
Machinery
Assembly
Maintenance & Repair
Infirmary
Total Cost
Direct Material
33.000
25.000 -
58.000
Direct Labor
16.640
13.800
30.440
Factory Overhead
8.360
8.200
2.640
800
20.000
47.000
50.440
 Benefits Received
Machinery
Assembly
Maintenance and Repair
Infirmary 
Total
Infirmary
%25
%40
%35 -
%100
Maintenance & Repair
%45
%30
Required: Apportion the indirect costs according to Simultaneous Equation Method.