Page 175 - DCOM202_COST_ACCOUNTING_I

Unit 8: Overheads

Supervision 15,000 Notes
Fire insurance 5,000

power 9,000
Employer’s liability insurance 1,500
The following information is available in respect of the four departments:
departments Area Sq.ft. No. of Total Wages Value of Plant Value of Stock
Employees (`) (`) (`)
A 1,500 200 60,000 2,40,000 1,50,000
B 1,100 150 40,000 1,80,000 90,000
C 900 100 30,000 1,20,000 60,000
D 500 50 20,000 60,000 –
Apportion the costs to the various departments on the most equitable method.
Solution:

Statement of departmental Overhead Primary distribution
Items of Expenses Basis of Production departments Service Total
Apportionment A B C dept. d (`)
(`) (`) (`)
Rent Floor area 3,750 2,750 2,250 1,250 10,000
Repairs of plant plant value 2,400 1,800 1,200 600 6,000
Dep. of plant plant value 1,800 1,350 900 450 4,500
Light exp. Floor area 375 275 225 125 1,000
Supervision No. of employees 6,000 4,500 3,000 1,500 15,000
Fire Insurance Stock value 2,500 1,500 1,000 – 5,000
power plant value 3,600 2,700 1,800 900 9,000
Employer’s Total wages 600 300 400 200 1,500
Liability Insurance
Total 21,025 15,275 10,675 5,025 52,000
Working note: Lighting should always be apportioned on the basis of the number of light points.
In the absence of this information, the floor space occupied may be used as the basis. In this case,
fire insurance is assumed to relate to only stock and has been apportioned on the basis of value
of stock.

Example: A manufacturing company has 2 production departments A and B and
three Service Departments name by Time-keeping, Stores and Maintenance. The departmental
summary showed the following expenses for December, 2007.
production Departments ` `
A 16,000
B 10,000 26,000
Service Departments:
Time-keeping 4,000
Stores 5,000
Maintenance 3,000 12,000
38,000

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