Page 79 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes (b) Direct Labour Cost Method:

Estimated Factory Overheads ` 58,000
Estimated Labour Cost ` 97,800
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
Overhead Application Rate = ` 1.149

2. Comparative Statement of Cost of Batch No. 488

Particulars Direct Labour Direct Labour Machine Hour
Rate Method Cost Method Rate Method
Direct Materials Consumed 42 42 42
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:
1. Direct Material Cost Percentage Rate:

Overhead expenses
= × 100
Direct material cost

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