Page 185 - DCOM202_COST_ACCOUNTING_I

Unit 9: Absorption of Overheads

Estimated Labour Cost ` 97,800 Notes
,
58 000
Overhead Application Rate = × 100 = 59.3%
97 800
,
(c) Machine Hour Rate Method:
Estimated Factory Overheads ` 58,000
Estimated Machine Hours ` 50,500
58 000
,
Overhead Application Rate = = ` 1.149
50 500
,
(ii) Comparative Statement of Cost of Batch No. 488
direct Labour Rate direct Labour Cost Machine Hour Rate
Particulars
Method Method Method
Direct Materials 42 42 42
Consumed
Direct Labour 45 45 45
prime Cost 87 87 87
Factory Overhead 12.93 26.68 22.98
99.93 113.68 109.98

Example: The production department of a factory furnishes the following information
for the month of June, 2007.

Material ` 54,000
Director Wages ` 45,000
Labour-hours worked 36,000
Hours of machine operation 30,000
Overheads chargeable to the department ` 36,000

For an order executed by the department during the period, the relevant information was as under:
Material used ` 6,000
Direct wages ` 3,200
Labour hours worked 3,200
Hours of machine operation 2,400

Calculate the overhead charges chargeable to the job by the following methods: (a) Direct
materials cost percentage rate, (b) Labour hour rate, and (c) Machine hour rate.
Solution:

(a) Direct Material Cost percentage Rate:
Overhead exp enses
= × 100
Direct material cos t
,
36 000
= × 100 = 66.67%
54 000
,

LOVELY PROFESSIONAL UNIVERSITY 179