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Management Accounting Factory overhead Apportionment of Cost.

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Presentation on theme: "Management Accounting Factory overhead Apportionment of Cost."— Presentation transcript:

1 Management Accounting Factory overhead Apportionment of Cost

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 Apportionment & Allocation Non ReciprocalReciprocal Repeated allocation method Algebraic method

5 Exercise Following data are extracted form the estimates prepared by Plastic Pots & Furniture for the accounting year: - ElectricityAfs. 54,000 Bonus Pay21,000 Factory Rent240,000 Power747,000 Depreciation195,000

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 Exercise Following further data are also available: Production DepartmentService Department MoldingMachiningFinishingCanteenMaintenance Materials (Afs.) 300,000130,00045,00040,00075,000 Wages (Afs.) 400,000750,000755,00095,000100,000 Cost of Assets (Afs.) 125,000250,000130,00070,00075,000 Horse Power Hour 7001,40060088200 Area in Sq. Yard 180 24060 Metered Units 6,000 7,0002,0003,000 No. of Employees 2403003803080

9 Solution Plastic Pots & Furniture Work Sheet Apportionment of Factory Overhead Product Deptt. Cost Heads Production DepartmentService Department Total MoldingMachiningFinishingCanteen Machine Maintenance Allocated Cost (Identified) Materials 40,00075,000115,000 Labor Wages 95,000100,000195,000 135,000175,000310,000 Electricity 13,500 15,7504,5006,75054,000 Bonus Pay 4,0007,5007,5509501,00021,000 Factory Rent 60,000 80,00020,000 240,000 Power 175,000350,000150,00022,00050,000747,000 Depreciation 37,50075,00039,00021,00022,500195,000 c/f 203,450275,250156,700

10 solution b/f 203,450275,250156,700 No. of Employees 48,82861,03577,311(203,450)16,275 291,526 Division (1:2:1) 72,882145,76372,881(291,526) Total 411,710712,798442,792

11 Apportionment Electricity Basis Metered units CanteenMachine Maintenance MoldingMachiningFinishing 2,0003,0006,000 7,000 Total 24,000 2366724 2/243/246/24 7/24

12 Apportionment Electricity Molding54,000/24*613,500 Machining54,000/24*613,500 Finishing54,000/24*715,750 Canteen54,000/24*24,500 Machine maintenance 54,000/24*36,750

13 Apportionment Bonus Pay Basis Labor wages MoldingMachiningFinishingCanteenMachine Maintenance 400,000750,000755,00095,000100,000 Total 2,100,000 400750755951002100 400/2100750/2100755/210095/2100100/2100

14 Apportionment Bonus Pay Molding 21,000 /2100*4004,000 Machining 21,000 /2100*7507,500 Finishing 21,000 /2100*7557,550 Canteen 21,000 /2100*95950 Machine maintenance 21,000 /2100*1001,000

15 Apportionment Rent Basis Area Occupied MoldingMachiningFinishingCanteenMachine Maintenance 180 24060 Total 720 180/720 240/72060/720

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

17 Apportionment Power Basis Horse Power MoldingMachiningFinishingCanteenMachine Maintenance 7001,40060020088 Total 2,988 700/2,9881400/2988600/2988200/298888/2988

18 Apportionment Power Molding 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 MoldingMachiningFinishingCanteenMachine Maintenance 125,000250,000130,00070,00075,000 Total 650,000 125/650250/650130/65070/65075/650 1252501307075 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 MachiningFinishingMaintenanceAir-conditioning 100,00070,00040,00030,000 Allocated indirect cost 240,000 MachiningFinishingAir-conditioning Maintenance Appropriation 60%15%25% Air Conditioning 70%25%5%

22 MachiningFinishingMaintenanceAir-conditioning 100,00070,00040,00030,000 ProductionService Allocate Indirect cost (240,000) 24,000 6,000 (40,000) 10,000 28,000 10,000 2,000 (40,000) 1,200 300 (2000) 500 350 125 25 (500) 15 3.50 (25) 6.50 5 1.50 0.50 (6.50) 153,57086,430 Maintenance Air conditioning Maintenance Air conditioning Maintenance Air conditioning Solution

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