a iL wr oF re anu” heme, my | Aine \ LAN 4 Unaboo ) Toul pan wi nasa’ Less 400 Unabsorbed 1" ,_ prod units si OOUHHAD es, pe ll Number © F pate © 4G 000 anit tL Le ED yet ni 40,000, units 7 In _ 30.07 nay be debited to CoM ptr antl LY psorbed am a ay Wve adlderd 4) units ClOsiO F,a0 unite 7 1% 4 fe, 40,000 087 ib) For 10,900 units © lun! te ahe value of clasi stock Journal Eatry mip Prone an foes BECOME Dr 400,000 i ya), "2,40,0000 + Bess 120,000) si Fishel Control Account DE 40,00" ALP rer Contral ALcounL 5 Led! at thes norssal yy inte accoun 1The actual 1.25 per bow hooks of wold, there wer A030, Takin ad in production at sf 10 clone th eceustits, OO ory, overhe: 104, How would you proe “7 q00 units produced of which 7,000 wer alent units in work-in-prof oni Sh Hi ation, it was found that 50% of the unabsorbed ow and indirect labour and the tion of the On investigi in cost of indirect mater! ry ineficieney. Alvo give the profit napli [CA.Unter) Nov, 2000] Solution = Rs 440,500 Actual factory overhead expensen incurred Al) Factory overhead recovered in production (2,983,104 brs, % Bs. 1.25) Total unabsorbed factory overhead S04 of unabsen absorbed factory overhead ; ad due to increase j dest meni and indirect aor emcee meas of Res. 40,006 Si of una i we f unabsorbed factory overhead (SOPs of Rs, Hoan) due to factory inefficieney yer 3,000 20,000 Scanned with CamScanners in cost necounts ent of unabsorbed Cetory overheads ‘In cost acco Wbad factory overhioad of Rs, 40,000 due to wand Hense should by charged to Costing Profit and Lo WY Unabsorbed factory overhead of and inditect labour is th MUS d supplementary rate, ‘Total equivalent uits produced Units 7,000 Closing stock finished goods 800 Closing 200 Supplementary factory overhe: Unabsorbed overhead of Rs, Sold, closing stock of fi above supplementary facto ad rate = 40,000 should be distri ed goods and closing ry overhe: Cost of goods sold (7,000 Closing stock of finished Closing stock of worksine ibuted Stock of work-ine ‘ad rate as follows ; units x Rs, §) g00ds (800 units x Progress (200 units Rs, 5) Rs, 5) Impact of above on profit: Teased for increas, Of closing stock of finished Bo0ds creased for ing of work-in. ein Value . Tease in Value of closing stock Progress, Net reduction in profit Problem ; 18 Ina machine shop, the machine hour gars a following estimates for operating a mache Total available weekly wwe? Machi S Worked out at Ne are the be tory inefficiency 40,000 due to inerease in cost of indirect 1 voumat iH nature and hence should be charged 10 units produced by § AND SOLUTIONS MOST AND MANAGEMENT ACCOUNTING | PROBLEMS AND SOL is abnormal Account directly, erial Rs. 5 per unit, Among cost of goods Progress on the ba: is of 35,000 Rs. 4,000 = Rs. 1,000 Rs. 40,000 —_ Rs, 4,000 1,000 5,000 35,000 30,000. Scanned with CamScannerRCO AND is Manan paeemy UMS AND SOLUTION HMENT ACHTUNG Nate As the a iv is deducted ta get the effective machin, eH Up Ate is unprewluctive eee se deducted t0 get the effectiy, Nour TE the weitiag ag time te prontuctive, need noth machure ty Deottem 5 19 Va * Me Hollow inp pueticutens, caboulate the machine hour te, ) Coe at the quaine Re LAMMOK Pstumate Tite 10 years, Serap value Rs. 10,009 Y) Veunated wanting time) weeks of a4 hours each I includes 200 hours a 4 val wenance ond TO) hoor as setting up time However, setting up time ; Wepanted a jwestuctive tim Powe: used dunng production ts 16 units per hour @ 9 paise per unit. No current Taken daring maistoninee or setting up time. © The wachine requires a chemical solution whieh is replaced at the end of cach week * NO each time N maintenance ts Rs 1,200 per annum {wo ottendants control the operation of this machine together with five other identical % Then combined weekly wages amount to Rs, 120. “omeral works overheads allocated to this machine amount to Rs, 2,000 for the year [Delhi B.Com.—Adapted) Sotiation went showing Computation of Machine Hour Rate Per Year | Per Hour] Rs, Rs. Stenting Charges General Works Overheads allocated 2,000 Wapes of Machine Atiendants Be 120» 50 weeks) = 6} 1,000 For 2.000 hours (sce working note) 3,000, | 1,500 Konning Expenses : Power (6 waits * Re 009 > 1,900 hours) + 2,000 hours) L308 Chemucals (0 * Ks 201+ 2.000 hours} 0.500 Masmienance (Rs 1.200 ~ 2,000 hours) 0.600, 1) 100,000, Rs 10,000, | Permeation |{ M100 40 Re. 10,0 ) +20 how] 4-500 Machine Hour Rate S46: @ Working Notes: Calculation of effective machine hours per year Normal working hours (80 x 44) Less Tune ken up in maintenance 2.200 hours 200 hours 2,000 hours Effective machine hours pet year Scanned with CamScannerNote + hours to arrive at the effect worki (iy While es setting-up (i working hours (b e. 200 hours and 100 hours te 2,200 = 200 = 100 = 1 Problem ¢ 20. From the particulars furnished below, Cost of machine Cost of anstallation Serap value at the end of 10 years Indirect wages and materials for the machine Supervision cost for four simi Insurance premium for the mach Rent of the machine shop Electricity cost for the machine shop Power consumption of the machine is 20 units per chine shop is 600 sq. metres of which this machine 50 paise per unit. The total area of the occupies only 150 sq. metres ‘There are 200 light points in the utilises only 40 points. Itis estim: iy Aste setting-up tine is reganed as prxluctic muehine hours, culating, hours for power consmptio espe OVEITIEADS M237 me, itis Hot deducted from normal idle hows for maintenance ively) are dedueted fiom no 900 hours), compute the Machine Hour Rs, 90,000 10,000 5,000 500 16,000 200 400 100 tual working hour. Power cost is per year per year per quarter per month per month ¢ shop of equal wattage of which this machine ed that the machine will normally work for 2,700 hours in a year, but it is apprehended that the machine will remain idle for 200 hours. [C.U.B.Com. (Hons.), 1985] Solution : STATEMENT SHOWING COMPUTATION OF MACHINE HOUR RATE Fixed Expenses : Insurance (Rs, 200 x 4 quarters) Rent [ors 4000 x12 months) x Electricity [ers 100 x12 months) x Supervision ({Rs.16,000) For 2,500 hours (see working) Variable Expenses : zm) Indirect wages and materials ( Depre TO years Power (20 units x Re. 0-50) Machine Hour Rate inf 90,000 + Rs.10, 000 - Rs.5,000) Per Year] Per Hour| Rs, Rs. 800 1200 240 4,000 6240 | 2-496 0200 ! m 560 7 10-000 16496 Scanned with CamScannervthe 4 weeks F covedtiends urine inet punty, 190 at ROE capaclly i200 is, 900 ion Teetive Mactine Hours during aris ine the a weeks af February. 1996 0 MA Revised Overheat! an “ = Rs. 6°25 Application Bale Acti Overheutl :) ( ateetive Machine Tous 2 Rs, 8:33 g the year urs worked durin} @ Working Notes tive machine ho 1, Caleutation of effec! eas bt) esa Machine hours worked during the year (5 i z cate Less: 209 idle time due to normal repairs & maintenance (20% of 2.250) chine hours worked during the year 1,800 hrs. 4 weeks of Effective ma dQ during the 2. Calculation of ‘effective machine hours worke February, 1996 Feeetive machine hours worked during the 4 weeks of February, 1996 = 80% of (4 x 45 hrs.) = 144 hrs. recovered at 2 pre-determined rate of curred and the man-days actually tively. Out of the 40,000 units Problem : 16. In a manufacturing unit, Bas. 25 per manday. The total factory overhead expenses in I were 41°50 lakhs and 1°5 lakhs man-days respec 30,000 were sold. it was found that 60% of attributable to increase in overhead costs. factory overhead was worke produced during a period, On analysing the reasons, to defective planning and the rest were How would unabsorbed overheads be treated in Cost Accounts ? IC. A. (Inter) Nov., 1992] the unabsorbed overheads were due Solution + Rs. Factory Overhead expenses actually i s ly incurred Factory Overheads absorbed on the basis of pre-determined rate pe (1,50,000 man-days x Rs. 25) Unabsorbed Factory Overheads 4,00,000 Scanned with CamScanner5 233 OVERHEAD! pATMENT OF UNABSORBED FACTORY € TREAT a aid in 40,000 due to defective planning which is abnormal of Rs. 400,000 = Rs. (i) 04 nature. Hence, it may be debited to Costing Profit and Loss Account i ‘Total Unabsorbed Factory Overhead 4,00,000 7 Less ¢ Unabsorbed Factory Overhead due to defective planning 2,40,000 Unabsorbed Factory Overhead of normal nature 1,60,000 Number of units produced 40,000 Rs. 1,60,000. 9,000 units 30,000 units actually sold — 30,000 units x Rs. 4 = Rs. 1,20,000. his unabsorbed factory overhead may be debited to Costing Profit and Loss Account as a part of the cost of goods sold. (b) For 10,000 units closing stock— 10,000 units x Rs. 4 = Rs. 40,000 may be added to the value of closing stock. ©, Supplementary Factory Overhead Rate = = Rs. 4 per unit. Journal Entry Costing Profit and Loss Account ...... Dr. 3,60,000 (Rs, 2,40,000 + Rs. 1,20,0000i(@)) Finished Goods Ledger Control Account ... Dr. 40,000(4i(b) To Factory Overheads Ledger Control Account 4,00,000 Problem : 17. v4 ‘The total overhead expenses of a factory are Rs. 4,46,380, Taking into account the normal working of the factory, overhead was recovered in production at Rs. 1.25 per hour. The actual hours worked were 2,93,104. How would you proceed to close the books of accounts, assuming that besides 7,800 units produced of which 7,000 were sold, there were 200 equivalent units in work-in-progr¢ ; On investigation, it was found that 50% of th Increase in cost of indirect materi: to factory inefficiency. Also give ¢ unabsorbed overhead was on account o! als and indirect labour and the remaining 50% was duc the profit implication of the method suggested. solution [C.A.(Inter) Nov., 2000] Actual fact fs a! factory overhead expenses incurred 4,46 46,38 Factory overhead Tecovered in production 3,66, a (2,93,104 hrs. X Rs. 1.25) -_ Tot a 7 a ‘al unabsorbed factory averhaad Scanned with CamScannerONS WHLEMS AND SOLUTH pre » OUNTING “NW COST AND MANAGEMENT ACCOUNT Nroblem : 15, pas three distinct machine \ production facturing concern b NW oande ccks vrork for 50 Wee hing will normally wor in idle 20% of this 1 department of Wis estimated that each ma eee Nous per week, fut itis anticipated that the ma le 10 normal repaits and maintenance he year ended ent for the y The budgeted figures of the production department f areas follows = {31st March, 10 | SS... Rs, 4,800 Rent and Rates oD ream 10,500 Depreciation ee Indirect Wag : a Canteen Expenses ou 6, Repaits & Maintenance : ) Sundries 3.00¢ Power 12,000 Other Informa Machine | Machine A B Space Occupied (sq, ft) 100 150 Light Points 5 5 | Cost of Machines (Rs,) 25,000 | 30,000 H. P. of Machines 2 25 No. of Workers 3 3 Direct Wages (Rs.) 6.000 | s.099 During the 4 weeks of February, achine A Rs. 1 299, for Scanned with CamScannerzl OVERHEADS ion * i 5, soll statement showing computation of Pre-determined Overhead Rate o for the year ended 31st March, 1996 Basis of Total Machine verheads Apportionment Rs. A B c Rs. Rs. Rs. Rent and Rates aa ae 4800 | 1,200] 1,800 1,800 Lighting a ae Points} 900 250 250 400 Depreciation oe ee 10,500 | 2,500] 3,000 5.000 Indirect Wages Direct Wages 4500 | 1.800} 1,200] 1,500 (6: 4:5) Canteen Expenses No. . ey 2,500 750 750 1,000 3:4) Repairs and Cost of Machines | 6,300 | 1,500 | 1,800) 3,000 Maintenance (5: 6: 10) Sundties Direct Wages 3,000 | 1,200 soo | 1,000 (6:4:5) Power H.P. of Machines | 12,000} 3,200} 4,000} 4,800 (2:25: 3) Total Overhead for the year 44,500 | 12,400 | 13,600 | 18,500 Effective Machine Hours for the year 1800 | 1800 1800 Predetermined Overhead Overheads Rate per Machine | Effective Machine Hour Hours Rs. 688 | Rs. 7:55 [Rs. 10:27 (b) Statement showing the amount of under/over absorption of overhead Machine A | Machine B | Machine C Rs. Rs. Rs. Actual Overhead during the 4 weeks of 1200 900 2000 February, 1996 at 80% capacity utilisation Overhead absorbed as per pre-determined overhead rate during the 4 weeks of February, 1996 at 80% capacity utilisation: 992 | 1,088 1,480 Machine A — 144 hours x Rs. 6-88, Machine B — 144 hours x Rs. 7-55 Machine C — 144 hours x Rs. 10-27 Over-absorption of Overhead 188 an ‘Under-absorption of Overhead 208 _ 520 Scanned with CamScanner“Je ‘Total Overhead _ Rs.1,02,000 ‘gota! overhe! Budgeted Direct Labour Hours ~ 68,000, pot yet aso othe 6 wuts ‘ol ageted Diet Labour Hour Rate x Actual Direct Labour Hours 2 150 x 65.000 = Rs, 97,500 gator ovemead TF the 6 mons Actual Overheads ~ Total Absorbed Overheads: 700 + Rs. 65,800) ~ Rs. 97,500 “ayer + 14 ee Light Manufacturing Company, the output is produced through three machine patents Ay Band C. The company follows pre-determined factory overhead absorption or the machine departments. Hourly rates fixed up for the year 2001 are Rs. 1600 Bot for Dept. As Rs. 18:80 per hour for Dept. B and Rs. 17-50 per hour for Dept. C, ‘The actual expenses of these machine departments for the year 2001 are as follows + Rs. Depreciation ‘of Machinery Repairs to Machinery 12,000 ent of Factory shed Lighting 4,000 Incirect Materials Canteen Expenses 15,000 indirect Wages Insurance of Machines 8,000 Power Sundry Expenses 18,000 The particulars relating to the machine departments are given below + [Departments Machine A. | Machine B_| Machine C \ P | ‘Area Occupied (Sq. ft.) 800 600 400 Value of Machinery (Rs.) 80,000 60,000 60,000 Direct Wages (Rs.) 50,000 40,000 30,000 Direct Materials (Rs.) 60,000 80,000 60,000 No, of Light Points 9 5 6 Power of Machines (H. P.) 20 40 20 No, of Workers 2 8 10 Actual Working Hours 3,000 2,500 2,000 : You are required to (a) Calculate overhead absorption rate pet working hour for the éeparmens, {) Compute the price to be charged for a job which requires Materials of Rs. 0 and Wages of Rs. 1,000, assuming the office and administration overhead is arged @ 20% on works cost, selling and distribution overhead @ 20% on cost of production and profits @ 25% on sale (The job requires 15, 12 and 10 hours of time in ae B and C respectively) and (¢) Determine over or under absorption of factory : [C. U. B. Com. (Hons.), 2002] Scanned with CamScannersouurias Mt AND 80 TIN ECOST AND MANAGEMENT ACCOUNTING PROBLE Solution ; Rate pet working tho, (4) Statement showing Computation of Overhead Absorption Rat for the year 2001 a Machine Basis of Total ee | ‘ Overheads Apportionment * Rs. Rs. | Re eee | TJ W000 | tory | Machine (86:6) on | Rent of — shed | Area Occupied 18,000 8,000 6.000 ‘ (82654) Indiect Materits | Direct Materials W000 | 3.0007 4.000} 3.000 16:86) lndirect Wages Direct Wapes 12000 | 5.000} 4,000} 3,009 G:4.3) | Power NP of Machines | 14000} 3.0001 — g.000 4.000 | Q:4:2) | Repairs to Machinery Value of Machinery 12,000 4.800 300 3p | (86:6) Lighting No. of Light Points | 4.999 1800) 1.000] 1.209 0:5:6) | Canteen Expenses No. of Workers 15.00) 6.000] s449 5.000 | (12:8: 10) | Insurance of Machines | Value of Machinery | 999 3200) 2.4001 2.409 8:66) Sundry Expenses Direct Wages 18.000 | 7.509 6.00} gs) (5:4: 3) | Toral Overheads | absorbed for the etd) 1,33, Actual Working Pee | st300| 45.000 Hours of the Machines for the year 2001 Overhead Absorption | Tora) Ovetheads | Rate per Working Hour | absorbed | Actual working the lee Seatniell @itiCamSeannerPRANLEMS AND SOLUTIONS Banu AAD AUAN AGEMENT ARO QUNTING PROWEEMS 4 Nalation ; AW) Stat HOU te year dome Overteads. | Depreciation an Machinery Root ot factory aed Wate Materials Indirect Wage Power | Repairy to Machinery Lighung Canteen Expenses | | Misurance of Machines Sundry Expenses, Total Overheads absorbed for the year 2001 Actual Working Hours of the Machines for the year 2001 Overhead Absorption Rate per Working Hour Mavis of Apportionment Valoe of Machinery JS ooo Atea Osvupiost Wow Dirvot Materials WS 0) Duvet Wages Odd VP. of Machines Qian Value of Machinery 6:0) No. of Light Points OsS:6) No. of Workers (25810) Value of Machinery 82626) Ditect Wages (Ss4:3) Total overheads absorbed Actual Working hours Vota Ry 20 000) 10,000 12,000 16,000 12,000 4,000 15,000 8,000 18,000 Machine per Working hoy, NE show ing Computation of Overhead Absorption Rate p i hou, $000] 4,000 4,000 000 4,800 3,000 1,800 1,000 6.000 4,000 3.200 2.400 7.500] 6.009 Rs. 13:00 B Cc Rs. Rs, 8.000] 6.000) 8.00, 8.000} 9,000 4.000 3.000} 4,000) 3000 Scanned with CamScannerii ba OHNE A Dates sawn (he tharos tae fal a he Aayoot Mata | i) (rivet | in Witine Hi | 2H | sy Ho | Masti AD fase fle HP An on Note HAE! hous Hada non Mattie EU tnnne He Hat) Warhe Gat tiifiee aval Advabitottatows Ovevtiead A Wha hn Bn 3.16 | 1 of Pret | | | sing, ava Honiton Ceytil LH00 ah Coat ob Proadiction © 200 an Mts 4787 20) Votal Cost \ {204 on Sale «fo Hate © fon Con | aw Rs asitony Helee to he charged {e) Staton showing determination of Over or Under-absorption of Factory Overhead Machi Ke, A | Machine 1 Ks, | Ks. 45,000 [- 6,700 Machine © Actual Pactory Overheads ancarsed fo the year 2001 Machine A 3,000 hours Rs 1710 Machine 1 2,900) hours Rs. 18 Machine © == 2,000 hours % Rs. 1848 51,300 Factory Overheads absorbed as pet Wesdetermined overhead ra Machine A — 3,000 hours «Rs. 16 Machine B— 2.500 hours * Rs. 18°80 Machine © — 2,000 hours » Rs. 17-50 48,000 47,000 35.000 Over—absorption of Factory Overhead ‘Vnler—abworption of Factory Overhead Scanned with CamScannerTIONS TING : PROBLEMS AND SOLU fl ccoul 246 COST AND MANAGEMENT AC Solution : or EMEN Ww SIVE M IN! UR RATE OF MACH T SHOWING COMPREHENSIVE MMaCIIl iE HOt STATEMENT § 4 | Tor Machine —~ Operation time For Machine Set up time i Per year [Per hour | Per year |” Per hogy Rs. Rs. Rs. Rs, Standing Charges : 6,000 6,000 Factory Rent (Rs 960005) 900 sat, 3,000 Heat and Gas (Rs. 45,000 + 15 machines)} 3,000 oe Supervision (Rs. 1,20,000+ 15 machines)| 8,000 po Annual Expenses on Special Equipment| 3,000 , 4,000 Depreciation [ 4,000 For Total 4000 hours 24,000 | 600 | 24,000 600 (See working) Running Expenses : Operator's Wages : For Set up ( an For Operation (Res 5 3) 3-00 Power 200 Comprehensive Machine Hour Rate 12:00 1100 | ‘ | Statement showing machine costs to be absorbed ii Machine B for in respect of use of {Wo work-orders Work-order 31 Work-order 32 Set up time cost Operation time cost Machine B COStS to be absorbed © Working fs Esti UP time of . Tal eae Noch 3,600 hours 400 8000 Foam Scanned with CamScanner