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Cost & Management Accounting

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Presentation on theme: "Cost & Management Accounting"— Presentation transcript:

1 Cost & Management Accounting
Factory overhead Lecture-15 Mian Ahmad Farhan (ACA)

2 Cost Allocation Cost that can be identified with a specific cost center.

3 Apportionment Cost that can not be identified with a specific cost centre but must be shared out between two or more center.

4

5 Exercise Following data are extracted form the estimates prepared by Plastic Pots & Furniture for the accounting year: - Electricity Rs. 54,000 Bonus Pay 21,000 Factory Rent 240,000 Power 747,000 Depreciation 195,000

6 Exercise Costs of service departments are prorated only to production departments: - Canteen Cost Apportion on No. of employees ratio. Machine Maintenance in the ratio of 1:2:1.

7 Cost centers Cost centers are area of a business of which cost can be identified.

8 Production Department
Exercise Following further data are also available: Production Department Service Department Molding Machining Finishing Canteen Maintenance Materials (Rs.) 300,000 130,000 45,000 40,000 75,000 Wages (Rs.) 400,000 750,000 755,000 95,000 100,000 Cost of Assets (Rs.) 125,000 250,000 70,000 Horse Power Hour 700 1,400 600 88 200 Area in Sq. Yard 180 240 60 Metered Units 6,000 7,000 2,000 3,000 No. of Employees 300 380 30 80

9 Production Department
Solution Plastic Pots & Furniture Work Sheet Apportionment of Factory Overhead Product Deptt. Cost Heads Production Department Service Department Total Molding Machining Finishing Canteen Machine Maintenance Allocated Cost (Identified) Materials 40,000 75,000 115,000 Labor Wages 95,000 100,000 195,000 135,000 175,000 310,000 Electricity 13,500 15,750 4,500 6,750 54,000 Bonus Pay 4,000 7,500 7,550 950 1,000 21,000 Factory Rent 60,000 80,000 20,000 240,000 Power 350,000 150,000 22,000 50,000 747,000 Depreciation 37,500 39,000 22,500 c/f 203,450 275,250 156,700

10 solution b/f No. of Employees Division (1:2:1) Total 203,450 275,250
156,700 No. of Employees 48,828 61,035 77,311 (203,450) 16,275 291,526 Division (1:2:1) 72,882 145,763 72,881 (291,526) Total 411,710 712,798 442,792

11 Apportionment Electricity
Basis Metered units Canteen Machine Maintenance Molding Machining Finishing 2,000 3,000 6,000 7,000 Total 24,000 2 3 6 7 24 2/24 3/24 6/24 7/24

12 Apportionment Electricity
Molding 54,000/24*6 13,500 Machining Finishing 54,000/24*7 15,750 Canteen 54,000/24*2 4,500 Machine maintenance 54,000/24*3 6,750

13 Apportionment Bonus Pay
Basis Labor wages Molding Machining Finishing Canteen Machine Maintenance 400,000 750,000 755,000 95,000 100,000 Total 2,100,000 400 750 755 95 100 2100 400/2100 750/2100 755/2100 95/2100 100/2100

14 Apportionment Bonus Pay
Molding 21,000/2100*400 4,000 Machining 21,000/2100*750 7,500 Finishing 21,000/2100*755 7,550 Canteen 21,000/2100*95 950 Machine maintenance 21,000/2100*100 1,000

15 Apportionment Rent Total Basis Area Occupied 180 240 60 720 180/720
Molding Machining Finishing Canteen Machine Maintenance 180 240 60 Total 720 180/720 240/720 60/720

16 Apportionment Rent Molding 60,000 Machining Finishing 80,000 Canteen
240,000/720*180 60,000 Machining Finishing 240,000/720*240 80,000 Canteen 240,000/720*60 20,000 Machine maintenance

17 Apportionment Power Total Basis Horse Power 700 1,400 600 200 88 2,988
Molding Machining Finishing Canteen Machine Maintenance 700 1,400 600 200 88 Total 2,988 700/2,988 1400/2988 600/2988 200/2988 88/2988

18 Apportionment Power Molding 175,000 Machining 350,000 Finishing
747,000/2988*700 175,000 Machining 747,000/2988*1400 350,000 Finishing 747,000/2988*600 150,000 Canteen 747,000/2988*200 22,000 Machine maintenance 747,000/2988*88 50,000

19 Apportionment Deprecation
Basis Power Molding Machining Finishing Canteen Machine Maintenance 125,000 250,000 130,000 70,000 75,000 Total 650,000 125 250 130 70 75 650 125/650 250/650 130/650 70/650 75/650

20 Apportionment Deprecation
Molding 195,000/650*125 37,500 Machining 195,000/650*250 75,000 Finishing 195,000/650*130 39,000 Canteen 195,000/650*70 21,000 Machine maintenance 195,000/650*75 22,500

21 Reciprocal Appropriation (Repeated Appropriation Method
Machining Finishing Maintenance Air-conditioning 100,000 70,000 40,000 30,000 Allocated indirect cost 240,000 Machining Finishing Air-conditioning Maintenance Appropriation 60% 15% 25% Air Conditioning 70% 5%

22 Solution Machining Finishing Maintenance Air-conditioning 100,000
Production Service Machining Finishing Maintenance Air-conditioning 100,000 70,000 40,000 30,000 Allocate Indirect cost (240,000) Maintenance 24, , (40,000) 10,000 Air conditioning 28, , ,000 (40,000) Maintenance 1, (2000) Air conditioning (500) Maintenance (25) Air conditioning (6.50) 153,570 86,430

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