KNOWLEDGE ACADEMY CA INTER COST ACCOUNTING

Q.1 Analysis of Semi-Variable Costs N 95, N 09

From the following information, calculate the amount of Variable OH per unit & amount
of Total Fixed OH for the whole year.

Particulars 1st Apr to 30th Jun 1st Jul to 31st Mar

Output (units) 10,000 35,000

Total Overheads (₹) 40,000 1,35,000

Q.2 Segregation of Fixed Cost and Variable Cost - Comparison by Period or Level
of Activity Method

A Company had Total Semi-Variable Expenses ₹ 3,000 during the previous month and
the degree of variability is assumed to be 70%. If the Output during next month
increases by 50%, what will be the Total Semi-Variable Expenses of the next month?

Q.3 Segregation of Fixed Cost and Variable Cost

From the following data, identify the Fixed and Variable Elements of Cost, using Linear
Relationship.
Particulars Level of Activity

Capacity % 60% 80%

Volume (Labour Hours) or ‘x” 150 200

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Semi-Variable Expenses (maintenance of ₹ 12,000 ₹ 12,750

Plant) or ‘y1

Q.4 OH segregation into Fixed and Variable M 10

Compute-(1) Rate of Cost Variability, and (2) Total Fixed Cost from the data provided
below of a Financial Year-

Month Activity Repairs & Month Activity Repairs &

Indices Maintenance Indices Maintenance
(Machine Cost (Machine Cost
Hours) Hours)

April 400 ₹ 3,125 October 720 ₹ 4,000

May 600 ₹ 3,750 November 800 ₹ 4,200

June 800 ₹ 4,200 December 1,000 ₹ 4,375

July 1,000 ₹ 4,375 January 900 ₹ 4,250

August 1,200 ₹ 4,750 February 800 ₹ 4,125

September 500 ₹ 3,440 March 400 ₹ 3,150

Q.5 A Machinery was purchased from a Manufacturer who claimed that his
Machine could produce 36.5 tonnes in a year consisting of 365 days. Holidays,
breakdown, etc. were normally allowed in the factory for 65 days. Sales were
expected to be 25 tonnes during the year and the plant actually produced 25.2
tonnes during the year.

You are required to state –

(a) Rated Capacity,

(b) Practical Capacity,

(c) Normal Capacity, and

(d) Actual Capacity.

Q.6 Capacity Concepts

Ram Ltd manufactures a product at the rate of 10 pieces per hour. The Company has
been producing and selling 3,30,000 units annually during the previous 6 years.

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However, during this year the Company was able to produce 3,16,000 units only. The
Company’s Overheads for this year amounted to ₹ 6,75,000.
The Company has 15 machines (of the same type) and works on single shift only, i.e. 8
hours per day. During a year, statutory and festival-related holidays are expected to be
65 days. The quarterly preventive maintenance and repairs work can be taken at 250
hours. Calculate –
1. Maximum Capacity, Practical Capacity, Normal Capacity, Actual Capacity and idle
Capacity in terms of hours and units,
2. Hourly Rate of Recovery of Overhead for Maximum, Practical, Normal and Actual
Capacities.
3. Cost of Idle Capacity.

Q.7 Apportionment and Direct Re-distribution M 07

A Company has three Production Departments (M1, M2 and A1) and three Service
Departments, one of which Engineering Service Department, servicing the M1 and M2
only. The relevant information is as follows:

Product X Product Y

M1 10 Machine hours 6 Machine hours

M2 4 Machine hours 14 Machine hours

A1 14 Direct Labour hours 18 Direct Labour hours

The annual Budgeted Overhead Costs for the year are –

Particulars M1 M2 A1 Stores Engineering General

Services Services

Indirect Wages ₹ ₹ ₹ ₹ 8,200 ₹ 5,340 ₹ 7,520

46,520 41,340 16,220

Consumable ₹ ₹ ₹ 4,200 ₹ 2,800 ₹ 4,200 ₹ 3,200

Supplies 12,600 18,200

The annual Budgeted Overhead Costs for the year are - (continued)

Depreciation on Machinery ₹ Power ₹

39,600 6,480

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Insurance of Machinery ₹ Light ₹

7,200 5,400

Insurance of Building (See ₹ Rent (See Note 2) ₹

Note 1) 3,240 12,675

Notes:
1. Total Building Insurance Cost for M1 is one third of annual premium.
2. The General Service Department Is located in a building owned by the Company. It is
valued at ₹ 6,000 and is charged into cost at Notional Value of 8% per annum. This cost
is additional to the rent shown above.
3. The value of issues of materials to the Production Departments are in the same
proportion as shown above for the Consumable Supplies.
The following data are also available:

Department Book Value Area Effective Production Capacity

of Machinery (Sq.ft.) H.P Direct Machine
(₹) Hours% Labour hours hours

M1 1,20,000 5,000 50 2,00,000 40,000

M2 90,000 6,000 35 1,50,000 50,000

A1 30,000 8,000 05 3,00,000

Stores 12,000 2,000 -

Engineering 36,000 2,500 10

Services

General 12,000 1,500 -

Services

Required:
1. Prepare a Overhead Analysis Sheet, showing the bases of apportionment of overhead
to Departments.
2. Allocate Service Department Overheads to Production Departments ignoring the
apportionment of Service Department Costs among Service Departments.
3. Calculate suitable Overhead Absorption Rate for the Production Departments.
4. Calculate the Overheads to be absorbed by two products, X and Y.

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Q.8 TRI-D has three production Departments - Extrusion, Machining and Finishing
and a Service Department known as Production Services which works for the
Production Departments in the ratio of 3:2:1.
The following information, which represent normal activity levels have been budgeted for
the year ending 31S1 December.

Costs (in ₹) Extrusion Machining Finishing Production Total

Services

Direct Wages 58,000 72,000 90,000 - 2,20,000

Direct Materials 40,000 29,000 15,000 - 84,000

Indirect Wages 15,000 21,000 8,000 58,000 1,02,000

Depreciation 84,000

Rent . 22,000

Power 1,80,000

Personnel 60,000
Department Exps.

Insurance 48,000

Other Data:
7,250 9,000 15,000 - 31,250
Direct Labour Hours
15,500 20,000 2,500 2,000 40,000
Machine Hours
800 1,200 1,000 1,400 4,400
Floor area (sqm)
1,60,000 1,40,000 30,000 70,000 4,00,000
Fixed Assets (₹)
40 56 94 50 240
Employees

1. Prepare an OH Analysis Sheet and calculate OH Absorption Rates for the Production
Departments.
2. The following data are available for the actual results of the Extrusion Department for
the period. Actual Overheads = ₹ 2,11,820, Actual Labour Hours = 7,380, Actual
Machine Hours = 16,250. Calculate the under I over recovery of overheads for the
Extrusion Department.

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Q.9 Re-Apportionment - Step Ladder Method RTP, N 85, N 18 (New)

NOP Limited has its own Power Plant and generates its own power. Data on power
requirements & power used are as follows:

Particulars Production Service Department

Department

A B X Y

Needed Capacity Production 20,000 25,000 15,000 10,000

Used during The quarter ended 16.000 20,000 12,000 8,000

30th September

During the quarter ended 30th September, costs for generating power amounted to ₹
12.60 Lakhs, out of which ₹ 4.20 Lakhs was considered as Fixed Cost.
Service Department X renders service to Departments A, B and Y in the ratio 6: 4: 2,
whereas Department Y renders service to Departments A and B in the ratio 4: 1. The
Direct Labour Hours in Departments A and B are 67,500 hours and 48,750 hours
respectively.
Required:
(a) Prepare OH Distribution Sheet,
(b) Calculate Factory OH per Labour Hour for the Departments A and B.

Q.10 SNS Trading Company has three Main Departments and two Service
Departments. Data for each department is given below:

Departments Expenses (in Area in (Square Number of

₹) Meter) Employees
Main Department:

Purchase Department 5,00,000 12 800

Packing Department 8,00,000 5 1,700

Distribution Department 3,50,000 7 700

Service Department

Maintenance Department 6.40,000 4 200

Personnel Department 3,20,000 6 250

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The cost of Maintenance Department and Personnel Department is distributed on the

basis of ‘Area in Square Meters and ‘Number of Employees' respectively. You are
required to:
1. Prepare a statement showing the distribution of expenses of Service Departments to
the Main Departments using the “Step Ladder Method” of Overhead Distribution.
2. Compute the Rate per hour of each Main Department, given that, the Purchase
Department and Distribution Department works for 12 hours a day, 24 hours a day and
8 hours a day respectively. Assume that there are 365 days in a year and there are no
holidays.

Q.11 Re-apportionment - Direct Method and Step Ladder Method N 06, RTP
RST Ltd has two production departments: Machining and Finishing. There are three
service departments: Human resource (HR), Maintenance and Design. The budgeted
costs in these service departments are as follows –

Particulars HR (in ₹) Maintenance (in ₹) Design (in ₹)

Variable 1,00,000 1,60,000. 1,00,000

Fixed 4,00,000 3,00,000 6,00,000

Total 5,00,000 4,60,000 7,00,000

The usage of these departments output during the year just completed is as follows -
Provision of Service Output (in hours of service) Providers of Service

Users of Service HR Maintenance Design

HR - - -

Maintenance 500 - -

Design 500 500 -

Machining 4,000 3,500 4,500

Finishing 5,000 4,000 1,500

Total 10,000 8,000 6,000

Required -
1. Use the Direct Method to re-apportion RST Ltd’s Service Department Costs to its
Production Departments.

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2. Determine the proper sequence to use in re-apportioning the Firm's Service

Department Costs by Step-down Method.
3. Use the Step-Down Method to re-apportion the Firm's Service Department Costs to
Production Departments.

Q.12 Gold Coast Ltd gives you the following information to compute the
production hour rate of recovery of Overheads in three Production Departments A,
8 and C.

Production Departments Service

Departments

Particulars A B C P Q Total

Rent 2,400 4,800 2,000 2,000 800 12,000

Electricity 800 2,000 500 400 300 4,000

Indirect Labour 1,200 2,000 1,000 800 1,000 6,000

Machinery 2,500 1,600 200 500 200 5,000

Depreciation

Sundries 910 2,143 847 300 300 4,500

Total OH 7,810 12,543 4,547 4,000 2,600 31,500

Working Time 1,000 2,500 1,400

(Hours)

Expenses of Service Departments P and Q are to be apportioned as under –

Particulars A B C P Q

P 30 40 20 - 10

Q 10 20 50 20 -

Compute the OH recovery rates of the three departments. (Use Repeated Redistribution
Method).

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Q.13 Delta Ltd is a manufacturing concern having two Production Departments P1

and P2 and two Service Departments S1 and S2. After making a Primary
Distribution of Factory Overheads, the Total Overheads of all Departments are as
under:
P1 ₹ 4.02,000, P2 ₹ 2,93,000, S1 ₹ 3,52,000, S2 ₹ 33,000
Overheads of Service Departments are re-apportioned as below:

P1 P2 S1 S2

S1 40% 50% - 10%

S2 50% 40% 10% -

A product ‘Z’ passes through all the two Production Departments - P and P and each
unit of product remain there in process for 2 and 3 hours respectively. The Material and
Labour Cost of one unit of product 'Z' is ₹ 500 and ₹ 300 respectively.

The Company runs for all the 365 days of the year and 16 hours per day. You are
required:
(I) To make Secondary Distribution of Overheads of Service Departments by applying
Simultaneous Equation Method, and

(II) (II) Determine the Total Cost of one unit of Product

Q.14 Re-Apportionment - Simultaneous Equations Method

PH Ltd is a Manufacturing Company having three Production Departments, ‘A’, ‘B’ and
‘C’ and two Service Departments ‘X’ and ‘Y’. The following is the budget for December –

Total A B C X Y

Direct 1,000 2,000 4,000 2,000 1,000

Material

Direct Wages 5,000 2,000 8,000 1,000 2,000

Factory Rent 4,000

Power 2,500

Depreciation 1,000

Other 9,000
Overheads

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Additional Area (Sq. ft.) 500 250 500 250 500

information:

Capital Value 20 40 20 10 10
(₹ Lakhs) of
Assets

Machine 1,000 2,000 4,000 1,000 1,000

hours

Horse Power of 50 40 20 15 25

Required:
(i) Statement showing Distribution of Overheads to various departments.
(ii) Statement showing Re-Distribution of Service Departments Expenses to Production
Departments.
(iii) Machine Hour Rates of the Production Departments ‘A’, ‘B’ and ‘C’.

Q.15 Re-apportionment-Simultaneous Equations Method RTP, N 07

ABC Ltd. has three Production Departments P1, P2 and P3 and two Service Departments
S1 and S2. The following data are extracted from the records of the Company for the
month of October:

Rent and Rates ₹ Power ₹

62,500 25,000

General Lighting ₹ 7,500 Depreciation on Machinery ₹

50,000

Indirect Wages ₹ Insurance of Machinery ₹

18,750 20,000

Other information:

Particulars P1 P2 P3 S1 S2

Direct Wages (₹) 37,500 25,000 37,500 18,750 6,250

Horse Power of Machines 60 30 50 10 -

used
Cost of Machinery (₹) 3,00,000 4,00,000 5,00,000 25,000 25,000

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Floor Space (Sq. ft) 2,000 2,500 3,000 2,000 500

Number of Light Points 10 15 20 10 5

Production Hours worked 6,225 4,050 4,100 - -

Expenses of the Service Departments S1 and S2 are re-apportioned as below:

P1 P2 P3 S1 S2

S1 20% 30% 40% - 10%

S2 40% 20% 30% 10%

1. Compute Overhead Absorption Rate per production hour of each Production

Department.
2. Determine the Total Cost of Product X which is processed for manufacture in
Department P1, P2 and P3 for 5 hours, 3 hours and 4 hours respectively, given that its
Direct Material Cost is ₹ 625 and Direct Labour Cost is ₹ 375.

Q.16 Re-Apportionment and Product Costing - Simultaneous Equations Method N

20 (New)
Tee Ltd is a Manufacturing Company having three Production Departments P, Q and R,
and two Service Departments X and Y, details pertaining to which are as under –

Particulars P Q R X Y

Direct Wages (₹) 5,000 1,500 4,500 2,000 800

Working Hours 13,191 7,598 14,995 - -

Value of Machinery (₹) 1,00,00 80,000 1,00,000 20,000 50,000

0
HP of Machines 100 80 100 20 50

Light Points (Numbers) 20 10 15 5 10

Floor Space (Sq. ft) 2,000 2,500 3,500 1,000 1,000

The expenses are as follows

Rent and Rates ₹ Power ₹ 3,500

10,000

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General Lighting ₹ Depreciation on Machinery ₹

70,000
600
Indirect Wages ₹ Sundries (apportionment on the ₹
3,450 basis of Direct Wages) 13,800

Expenses of the Service Departments are allocated as under:

P Q R X Y

X 45% 15% 30% - 10%

Y 35% 25% 30% 10% -

Product A is processed for manufacture in Departments P, Q and R for 6, 5 and 2 hours

respectively. Its Direct Material Cost is ₹ 65 per unit and Direct Labour Cost is ₹ 40 per
unit.
Required:
1. Prepare a Statement showing Distribution of Overheads among the Production and
Service Departments.
2. Calculate Recovery Rate per Hour of each Production Department, after re-
distributing the Service Departments Costs.
3. Find out the Total Cost of Product A.

Q.17 OH Reapportionment - Simultaneous Equations N 12

The following account balances and distribution of Indirect Charges are taken from the
accounts of a Manufacturing Concern for the year ending on 31st March : (in ₹)

Item Total Production Departments Service

Amount Departments

X Y Z A B

Indirect Material 1,25.000 20,000 30,000 45,000 25,000 5,000

Indirect Labour 2,60,000 45,000 50,000 70,000 60,000 35,000

Superintendent’s 96,000 - - 96,000 - -

Salary

Fuel & Heat 15,000

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Power 1,80,000

Rent & Rates 1,50,000

insurance 18,000

Meal Charges 60,000

Depreciation 2,70,000

The following department data are also available:

Item Production Departments Service Departments

X Y Z A B

Area (Sq. ft) 4,400 4,000 3,000 2,400 1,200

Capita! Value of 4,00,000 6,00,000 5,00,000 1,00,000 2,00,000

Assets (₹)

Kilowatt Hours 3,500 4,000 3,000 1,500 -

Radiator 20 40 60 50 30
Sections

No. of 60 70 120 30 20

Employees

Expenses charged to the Service Departments are to be distributed to other Departments

by the following percentages:

X Y Z A B

Department A 30 30 20 - 20

Department B 25 40 25 10 -

Prepare an Overhead distribution Statement to show the Total Overheads of Production

Departments after re-apportioning Service Department’s Overhead by using
Simultaneous Equation Method. Show all the calculations to the nearest rupee.

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Q.18 Re-apportionment - Simultaneous Equations Method RTP

ABC Ltd. budgets the following amounts for its two service departments (Legal and
Personnel) in supporting each other and the two production divisions the Micro
Computer Division (MCD) and the Peripheral Equipment Division (PED). Budgeted
Capacity is as under-

To be MCD PED Legal Personnel Total

supplied by

Legal (hours) 3,000 1,500 - 500 5,000

Legal (%) 60% 30% - 10% 100%

Personnel 45,000 50,000 5,000 1,00,000

(hours)

Personnel 45% 50% 5% - 100%

(%)

Details on actual usage are as follows:

MCD PED Legal Personnel Total

Legal (hours) 800 2,400 - 800 4,000

Legal (%) 20% 60% - 20% 100%

Personnel 53,200 22,800 4,000 - 80,000

(hours)

Personnel 66.5% 28.5% 5% - 100%

(%)

The actual expenses were: Legal Department: Fixed ₹ 7,20,000 and Variable ₹
4,00,000

Personnel Department: Fixed ₹ 9,50,000 and Variable ₹ 12,00,000

Fixed Expenses are allocated on the basis of budgeted capacity. Variable expenses are
allocated on the basis of actual usage. You are required to prepare a statement
showing apportionment of expenses of Service Departments (Legal and Personnel) to
Production Divisions MCD and PED, by using Simultaneous Equations Method.

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Q.19 Re-apportionment-All Methods N03

E-Books is an online book retailer having 4 departments. Two sales departments are
Corporate Sales & Consumer Sales. The two Support Departments are Administrative
(H.R. & Accounting) & Information system. Each Sales Department conducts
merchandising & marketing operations independently. The following data relate to
October.

Departments Revenues No. of Processing Cost incurred for

Employees time used Oct.

Corporate ₹ 42 2,400 minutes ₹ 12,97,751

Sales 16,67,750

Consumer ₹ 8,33,875 28 2,000 minutes ₹ 6,36,818

Sales

Administrative Nil 14 400 minutes ₹ 94,510

Information Nil 21 1,400 minutes ₹ 3,04,720

System

The Company uses number of employees as a basis to allocate Administrative Cost, and
processing time as basis to allocate Information System costs.
Required:
1. Allocate the Support Department Costs to the Sales Department using Direct Method.
2. Rank the Support Departments based on percentage of their services rendered to
other Support Departments. Use this ranking to allocate Support Costs based on the
step-down allocation method.
3. How could you have ranked the support departments differently?
4. Allocate the Support Department Cost to two Sales Departments using Reciprocal
Allocation method.

Q.20 Various Methods of Absorption and Job Costs RTP

The following figures have been extracted from the books of X Ltd. All jobs pass through
the Company’s two Departments –

Particulars Welding Department Finishing

Department

Material Used ₹ 60,000 ₹ 50,000

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Direct Labour ₹ 30,000 ₹ 15,000

Factory Overheads ₹ 18,000 ₹ 12,000

Direct Labour Hours 12,000 hours 5,000 hours

Machine Hours 10,000 hours 2,000 hours

The following information

relates to Job 27:

Material ₹ 1,200 ₹ 100

Direct Labour ₹ 650 ₹ 250

Direct Labour Hours 265 hours 70 hours

Machine Hours 255 hours 25 hours

Required:
1. List 5 methods of absorbing factory OH by jobs, showing the rates for each
Department under the methods,
2. Prepare a statement showing the different cost results for Job 27 under each of the
methods referred to.

Q.21 Choice of Method of Absorption

A Factory, which was allocating ‘Overhead Expenses’ to jobs on the basis of ‘Prime Cost’,
found the resulting cost ludicrous. The Management therefore decided that overhead
should be allocated either on the basis of Direct Labour Hours or Direct Labour Cost.
Scrutiny of a normal week’s accounts showed the following -
Factory Expenses incurred = ₹ 5,000, Direct Labour Costs = ₹ 2,500, Direct Labour
Hours worked = 500 man-hours

Direct Cost incurred on two typical jobs:

Particulars Job 847A Job 848B

Direct Materials ₹ 35 ₹ 35

Direct Labour Cost ₹ 4 per hour ₹ 4.50 per hour

Direct Labour Hours 8 hours 6 hours

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You are requested to compute the cost of each of these two jobs on the basis of Direct
Labour Cost rate and Direct Labour Hour Rate and give your views as to which of these
two rates are more equitable for adoption.

Q22. Simple Machine Hour Rate M 12

A Machine costing ₹ 10 Lakhs was purchased on 1st April. The expected life of the
Machine is 10 years. At the end of this period, its scrap value is likely to be ₹ 10,000.
The Total Cost of all Machines including new one was ₹ 90 Lakhs. The other information
is given as follows -
(i) Working Hours of the Machine for the year was 4,200 including 200 non- productive
hours.
(ii) Repairs and Maintenance for the new Machine during the year was ₹ 5,000.
(iii) Insurance Premium was paid for all the Machine ₹ 9,000.
(iv) New Machine consumes 8 units of electricity per hour, the rate per unit being ₹ 3.75.
(v) The new Machine occupies 1/10th of the area of the department. Rent of the
department is ₹ 2,400 per month.
(vi) Depreciation is charged on Straight Line Basis.
Compute the Machine Hour Rate for the new Machine.

Q.23 Machine Hour Rate M 16

The following particulars refer to process used in the treatment of Material subsequently,
incorporated in a component forming part of an electrical appliance:
1. The Original Cost of the Machine used (Purchased in June 2008) was ₹ 10,000. Its
estimated life is 10 years, the estimated scrap value at the end of its life is ₹ 1,000 and
the estimated working time per year (50 weeks of 44 hours) is 2,200 hours of which
machine maintenance, etc. is estimated to take up 200 hours.
No other loss of working time expected, setting up time, estimated at 100 hours, is
regarded as productive time. (Holiday to be ignored).
2. Electricity used by the machine during production is 16 units per hour at cost of a 9
paisa per unit. No current is taken during maintenance or setting up.
3. The Machine requires a chemical solution which is replaced at the end of week at a
cost of ₹ 20 each time.
4. The estimated cost of maintenance per year is ₹ 1,200.
5. Two Attendants control the operation of the Machine together with five other identical
Machines. Their combined Weekly Wages, Insurance and the Employer’s Contribution to
Holiday Pay amount ₹ 120.
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6. Departmental and General Works Overhead allocated to this Machine for the current
year amount to ₹ 2,000.
You are required to calculate the Machine Hour Rate of operating the machine.

Q.24 Machine Hour Rate M11

You are given the following information of the three machines of a Manufacturing
Department of X Ltd:

Preliminary Estimates of Expenses (₹ per annum)

Particulars Total Machine Machine Machine

A B C

Depreciation 20,000 7,500 7,500 5,000

Spare Parts 10,000 4.000 4,000 2,000

Power 40,000

Consumable Stores 8,000 3,000 2,500 2,500

Insurance of Machinery 8,000

Indirect Labour 20,000

Building Maintenance Expenses 20,000

Annual Interest on Capital 50,000 20,000 20,000 10.000

Outlay

Monthly Charge for Rent and 10,000

Rates

Salary of Foreman (per month) 20,000

Salary of Attendant 5,000

(per month)

Note: The Foreman and the Attendant control all the three machines and spend equal
time on them.
The following additional information is also available:

Particulars Machine A Machine B Machine C

Estimated Direct Labour Hours 1,00,000 1,50,000 1,50,000

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Ratio of K.W. Rating 3 2 3

Floor Space (Sq. Ft.) 40,000 40,000 20.000

There are 12 holidays besides Sundays in the year, of which two were on Saturdays.
The Manufacturing Department works 8 hours in a day but Saturdays are half days. All
Machines work at 90% capacity throughout the year and 2% is reasonable for
breakdown.
Calculate pre-determined Machine Hour Rates for the above Machines, after taking into
consideration the following factors -
1. An increase of 15% in the Price of Spare Parts.
2. An increase of 25% in the Consumption of Spare Parts for Machine ‘B’ & ‘C’ only.
3. 20% general increase in Wage Rates.

Q.25 Calculate Machine Hour Rate for recovery of Overheads for a machine from
the following information:
Cost of Machine is ₹ 25,00,000 and estimated salvage value is ₹ 1,00,000.Estimated
working life of the Machine is 10 years. Annual working hours are 3,000 in the Factory.
The Machine requires 400 hours per annum for repairs and maintenance. Setting - up
time of the Machine is 156 hours per annum to be treated as productive time. Cost of
Repairs and Maintenance for the whole working life of the Machine is ₹ 3,50,000 Power
used 15 units per hour at a cost of ₹ 5 per unit. No power is consumed during the
maintenance and setting - up time. A chemical required for operating the machine is ₹
9,880 per annum. Wages of an Operator is ₹ 4,000 per month. The Operator devoted
1/3rd of his time to the Machine. Annual Insurance Charges 2% of cost of machine.
Light Charges for the Department is ₹ 2,500 per month, having 48 points in all, out of
which only 8 points are used at this Machine. Other Indirect Expenses are chargeable to
the Machine are ₹ 6,500 per month.

Q.26. Comprehensive Machine Hour Rate Jan 21 (New)

A Machine Shop has 8 identical machines manned by 6 Operators. The Machine cannot
work without Operator wholly engaged on it. The Original Cost of all 8 Machines works
out to ₹ 32,00,000. Following particulars are furnished for a 6 months period –

Normal available hours per month per Operator 208

Absenteeism (without pay) hours per Operator 18

Leave (with pay) hours per Operator 20

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Normal Unavoidable Idle Time - Hours per 10

Operator

Average Rate of Wages per day of 8 hours per ₹ 100

Operator

Production Bonus estimated 10% on Wages

Power consumed ₹ 40,250

Supervision and Indirect Labour ₹ 16,500

Lightening & Electricity ₹ 6,000

The following particulars are given for a year:

Insurance ₹ 3,60,000

Sundry Works Expenses ₹ 50,000

Management Expenses allocated ₹ 5,00,000

Depreciation 10% of the Original Cost

Repairs and Maintenance (including 5% of the Value of all the

Consumables) Machines

Prepare a statement showing Comprehensive Machine Hour Rate for the Machine Shop.

Q.27 Comprehensive Machine Hour Rate M 19 (New)

Z Private Limited has purchased a machine costing ₹ 29,14,800 and it is expected to
have a salvage value of ₹ 1,50,000 at the end of its effective life of 15 years. Ordinarily
the machine is expected to run for 4,500 hours per annum but it is estimated that 300
hours per annum will be lost for Normal Repair & Maintenance. The other details in
respect of the machine are as follows –
(i) Repairs & Maintenance during the whole life of the machine are expected to be ₹
5,40,000.
(ii) Insurance Premium (per annum) 2% of the cost of the machine.
(iii) Oil and Lubricants required for operating the Machine (per annum) ₹ 87,384.
(iv) Power Consumption: 10 units per hour @ ₹ 7 per unit. No power consumption
during Repair and Maintenance.

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(v) Salary to Operator per month ₹ 24,000. The Operator devotes one-third of his time to
the machine.
You are required to calculate Comprehensive Machine Hour Rate.

Q.28 Comprehensive Machine Hour Rate N 13

Calculate Machine Hour Rate from the following particulars:

Cost of Machine - ₹ 25,00,000

Salvage Value - ₹ 1,25,000

Estimated Life of the Machine - 25,000 Hours

Working Hours (per annum) - 3,000 Hours

Hours required for Maintenance - 400 Hours

Setting-Up Time required - 8% of Actual Working Hours

Additional Information:
(i) Power 25 units @ ₹ 5 per unit per hour.
(ii) Cost of Repairs and Maintenance ₹ 26,000 per annum.
(iii) Chemicals required for operating the Machine ₹ 2,600 per month.
(iv) Overheads chargeable to the Machine ₹ 18,000 per month.
(v) Insurance Premium (per annum) 2% of the cost of Machine
(vi) No. of Operators - 02 (looking after three other Machines also)
(vii) Salary per Operator per month ₹ 18,500

Q.29 Comprehensive Machine Hour Rate

A machine costs ₹ 3,00,000 and is deemed to have a scrap value of 5% at the end of its
effective life of 19 years. Ordinarily the machine is expected to run for 2,400 hours per
annum, but it is estimated that 150 hours will be lost for normal repairs and
maintenance and a further 750 hours will be lost in normal shut- down.
The other details for the Machine Shop are –

Wages, Bonus and PF Contribution for ₹ 90,000 per annum

each of two Operators

(each Operator is in charge of 2

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machines)
₹ 30,000 per annum
Rent and Rates for the shop
₹ 2,500 per month
General Lighting of the shop
₹ 2,000
Quarterly Insurance Premium for the
machine
Repairs and Maintenance - average - for a ₹ 2,500 per month
machine
Shop Supervisor's Salary ₹ 5.000 per month

2 units [Cost of Power = ₹ 2.50 per

Power Consumption of machine per hour
power unit]
₹ 40,000 per annum
Other Factory Overheads attributable to
the shop

Compute the Comprehensive Machine Hour Rate on the basis of the following additional
information -
• There are 4 identical machines in the Shop,
• The Supervisor is expected to devote 1/5th of his time towards this Shop.

Q30. Comprehensive Machine Hour Rate N 07, M 15

A Machine Shop Cost Centre contains three machines of equal capacities. Three
operators are employed on each machine, payable ₹ 20 per hour each. The Factory
works for forty-eight hours in a week which includes 4 hours set- up time. The work is
jointly done by Operators. The Operators are paid fully for the forty-eight hours. In
additions they are paid a bonus of 10% of productive time. Costs are reported for this
Company on the basis of thirteen four-weekly period.
The Company for the purpose of computing machine hour rate includes the Direct
Wages of the Operator and also recoups the Factory Overheads allocated to the
machines. The following details of Factory OH applicable to the Cost Centre are
available-
• Depreciation 10% per annum on original cost of the machine. Original Cost of each
machine is ₹ 52,000.
• Maintenance and Repairs per week per machine is ₹ 60.
• Consumable Stores per week per machine are ₹ 75.
• Power 20 units per hour per machine at the rate of 80 paise per unit.
• Apportionment to the Cost Centre: Rent p.a. ₹ 5,400, Heat and Light p.a. ₹ 9,720, and
Foreman’s Salary p.a. ₹ 12,960.
Calculate - (a) Cost of running one machine for a four-week period, and (b) Machine
Hour Rate.

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Q31. Comprehensive Machine Hour Rate N 05

From the details furnished below you are required to compute a comprehensive
Machine-Hour Rate –

Original Purchase Price of the machine (subject to ₹ 3,24,000

depreciation at 10% p.a. on Original Cost)

Normal working hours for the month (The machine works to 200 hours
only 75% of capacity)

Wages of Machine man ₹ 125 per day (of 8

hours)

Wages for a Helper (Machine Attendant) ₹ 75 per day (of 8

hours)

Power Cost for the month for the time worked ₹ 15,000

Supervision Charges apportioned for the machine centre for ₹ 3,000

the month

Electricity & Lighting for the month ₹ 7,500

Repairs & Maintenance (Machine) including Consumable ₹ 17,500

Stores per month

Insurance of Plant & Building (apportioned) for the year ₹ 16,250

Other General Expenses per annum ₹ 27,500

The workers are paid a fixed Dearness Allowance (DA) of ₹ 1,575 per month. Production
Bonus payable to workers in terms of an award is equal to 33.33% of Basic Wages and
DA. Add 10% of the Basic Wages and DA against Leave Wages and Holidays with pay to
arrive at a comprehensive labour-wage for debit to production.

Q.32 Comprehensive Machine Hour Rate - Different Time Components M 97

SUPER-GLOW Ltd, having 15 different types of automatic machines, furnishes
information as under fora year-
1. OH Expenses: Factory Rent ₹ 96,000 (Floor Area = 80,000 sq. feet). Heat and Gas ₹
45,000 and Supervision ₹ 1,20,000.
2. Wages of the Operator are ₹ 48 per day of 8 hours. He attends to one machine when it
is under set-up and two machines while under operation.

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3. In respect of machine C (one of the above machines) the following particulars are
furnished –
(a) Cost of Machine ₹ 45,000, Life of Machine -10 years and scrap value at the end of its
life ₹ 5,000.
(b) Annual Expenses on Special Equipment attached to the machine are estimated at ₹
3,000.
(c) Estimated Operation Time of the Machine is 3,600 hours while set up time is 400
hours per annum.
(d) The machine occupies 5,000 sq.ft, of floor area.
(e) Power Costs ₹ 8 per hour while the machine is in operation.

Find out the Comprehensive Machine Hour Rate.

Q.33 Comprehensive Machine Hour Rate - Different Time Components

In RARELY-IDLE Ltd, Machine Hour Rate is worked out at the beginning of the year on
the basis of 13-week period, which is equivalent to 3 calendar months. The following
estimates for operating a machine are provided to you.
1. Total available working hours per week: 48 hours

2. Maintenance Time included in above: 2 hours

3. Setting-up Time included in above: 2 hours

4. Operator's Wages per month: ₹ 6,500

5. Supervisor’s Salary per month: ₹ 15,000 (Common Supervisor for 3

machines)

6. WDV of machine ₹ 1,80,000 (depreciation at 10%

p.a.)

7. Repairs and Maintenance per annum: ₹ 16,000

8. Consumable Stores per annum: ₹ 30,000

9. Rent& Rates for the quarter ₹ 5,000

(apportioned):

Power is consumed at the rate of 10 units per hour at the rate of ₹ 2.50 per unit. Power
is required for productive hours only. Setting-up time is part of productive time, but no
power is required for setting-up jobs.

The Operator & Supervisor are permanent. Repairs & Maintenance and Consumable
Stores are variable. You are required to determine the machine hour rate.

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Q34. Machine Hour Rate - with Set Up Time considered Unproductive vs

Productive M 05
A manufacturing unit has purchased and installed a new machine of ₹ 12,70,000 to its
fleet of 7 existing machines. The new machine has an estimate life of 12 years and is
expected to realise ₹ 70,000 as scrap at the end of its working life.

Other relevant data are as follows -

1. Budgeted working hours are 2,592 based on 8 hours per day for 324 days. This
includes 300 hours for Plant Maintenance and 92 hours for setting up of Plant.
2. Estimated Cost of maintenance of the machine is ₹ 25,000 p.a.
3. The machine requires a special chemical solution, which is replaced at the end of
every week (6 days in a week) at a cost of ₹ 400 each time.
4. Four Operators control operation of 8 machines and the average wages per person
amounts to ₹ 2,420 per week plus 15% Fringe Benefits.
5. Electricity used by the machine during production is 16 units per hour at a cost of ₹ 3
per unit. No current is taken during maintenance and set up.
6. Departmental and General Works Overhead allocated to the operation during last year
was ₹ 50,000. During the current year, it is estimated to increase by 10% of this
amount.

Calculate the Machine Hour Rate, if - a) setting up time is unproductive, (b) setting up
time is productive.

Q35. Comprehensive Machine Hour Rate M 19

A Manufacturing Company has added a new machine to its fleet of eleven existing
machines. The New Machine is purchased for ₹ 12,70,000 with Installation Cost of ₹
40,000. The Machine has an estimated life of 10 years and is expected to realize ₹
90,000 as scrap at the end of its useful life. Other relevant data are as follows:

1. Budgeted Annual Working Hours are 2,400 based on 8 hours per days for 300 days.
This includes 180 hours for Plant Maintenance and 120 hours of Productive Set-Up
Time.

2. Electricity used by the New Machine is 12 units per hour at a cost of ₹ 6.50 per unit.
No current is drawn during Maintenance and Set-Up.

3. Three Operators control the operations of all the twelve machines and Average Rate of
Wages per Operator per day is ₹ 600 and Production Bonus is 10% of Wages.

4. Annual Insurance Premium for the New Machine is ₹ 12,600.

5. Annual Maintenance Cost of New Machine including Consumable Stores is ₹ 32,500.

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6. Rent of the Factory is ₹ 24,000 per month. Area occupied by New Machine is 200 sq
ft. and area occupied by other machines is 2800 sq ft.

Required: Compute the Comprehensive Machine Hour Rate.

Q36. Set up and Running Time Machine Rate M 02

In a Factory, a Machine is considered to work for 208 hours in a month. It includes

Maintenance Time of 8 hours and a Set Up Time of 20 hours. The cost of the Machine is
₹ 5,00,000. Its useful life is 10 years at the end of which the scrap value will be ₹
20.000. The expense data relating to the Machine are as under –

Repairs and Maintenance per annum ₹ 60,480

Consumable Stores per annum ₹ 47,520

Rent of Building per annum (The machine under reference ₹ 72,000

occupies 1/6th of the area)

Supervisor’s Salary per month (Common to three Machines) ₹ 6,000

Wages of Operator per machine per month ₹ 2,500

General Lighting per month allocated to the Machine ₹ 1,000

Power (25 units per hour) ₹ 2 per unit.

Power is required for productive purposes only. Set up time, though productive, does not
require power. The Supervisor and Operator are permanent. Repairs and Maintenance
and Consumable Stores vary with the running of the machine. Calculate a two-tier
machine hour rate for - (a) Set Up time and (b) Running Time.

Q37. Machine Hour Rate - with special facility - Expenses of Crane – with and
without use of Crane

In a Factory there are three machines A, B and C. The expenses allocated to these
machines are A: ₹ 63,900, B: ₹ 60,700 and C: ₹ 95,100. In addition, there is an
Overhead Crane to bring materials to the machines as necessary. The expenses allocated
to this Crane are ₹ 57,000.

During the period of this expenditure, the machines were used as follows –
Particulars Machine A (in Machine B (in Machine C (in
Hrs) Hrs) Hrs)

With use of Crane 160 130 480

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Without use of 428 577 -

Crane
Total 588 707 480

Calculate a Machine Hour Rate for each machine, distinguishing between the hours in
which the crane is used and those in which it is not.

Q38. Machine Hour Rate, Product Cost, Abnormal Idle Time, etc. RTP

A Textile Company purchases cotton from farmers, and produces Shirting as final
product. Cotton is processed into two Departments namely Weaving Department and
Dyeing Department, which have the following cost details for January –

Department Weaving Dyeing

Capacity 7,200 hours 3,000 hours

Indirect Labour ₹ 1,72,800 ₹ 72,000

Indirect Material Consumed ₹ 1,80,000 ₹ 64,000

Depreciation ₹ 30,000 ₹ 10,000

Other Overheads apportioned ₹ 15,000 ₹ 3,200

Power Consumption per Hour @ ₹ 3.20 per ₹ 96 ₹ 32

unit

During the month, both Departments worked at 80% of their capacity and out of these
400 hours were expected to be lost due to unavoidable reasons. The Processing Time to
process 100 meter of raw product is 3.5 hours and 2 hours in Weaving Department and
Dyeing Department respectively.

At the end of the month, 1,00,000 meters of completed Shirting were produced and
50,000 meters of Shirting were in incomplete condition on which processing in
Dyeing Department is needed. There was no Stock at the beginning of the month. No
power is consumed during idle time.

You are required to calculate -

1. Machine Hour Rate for the two Departments.
2. Overhead Cost of 1,00,000 meters of completed Shirtings.
3. Cost of Abnormal Idle Time to be charged to Costing Profit and Loss Account.

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Q39. An Engineering Company purchases castings from outside and produces 2

products out of them. The major operations involved are first Finishing and then
Plating which constitute the major production. The following are the cost details
for the two shops for the month of October -

Particulars Finishing Shop (₹) Plating Shop (₹)

Indirect Materials 36,000 50,000

Consumed

Indirect Labour 12,000 18,000

Depreciation 20,000 30,000

Share of Apportioned 40,000 60,000

Overheads

Power Consumption per 20 units at ₹ 4 10 units at ₹ 4

Hour

The Finishing Shop normally works for 2,000 hours and the Plating Shop normally
works for 1,200 hours in a month. Out of the above 200 hours is unavoidable idle time.
During the month of October the full normal hours were worked. The following are the
normal process timings –
Finishing Plating
Product A 2 Hrs.
Product B - 1 Hr.
During the month of October the following are the details of production -
Product A - Fully completed 800 units, Finishing completed 100 units.
Product B - Fully completed 600 units.
There were no stocks at the beginning of the month. You are required to calculate the
following –
• Machine Hour Rates for the two departments,
• Finishing and Plating cost for the completed units,
• Abnormal Idle time I Overtime Cost which may be charged to Costing P & L Account.
Note: Power is not consumed during avoidable and unavoidable idle time.

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Q40. Computation of Over I Under recovery RTP

A Cost Centre in a factory furnishes the following working conditions:

Normal working time of 40 hours Actual results in respect of a 4-

machines per week week period are:

Number of machines 15

Normal weekly loss of hours on 4 hours per Overhead incurred ₹

maintenance, etc. machine 15,000

Estimated Annual Overhead ₹ 1,55,520 Wages incurred ₹ 7,000

Estimated Direct Wage Rate ₹ 3 per hour Machine-hours 2,200

produced
Number of weeks worked per 48
year

(a) Calculate the Overhead Rate per Machine-Hour, and

(b) Calculate the amount of under or over -absorption of both wages and overhead.

Q41. Computation of Over I Under Recovery RTP

Pane Company uses a Job Costing System and applies overhead to products on the
basis of Direct Labour Cost. Job No. 75, the only job in process on 1st January, had the
following costs assigned as of that date: Direct Materials ₹ 40,000, Direct Labour ₹
80,000, and Factory Overhead ₹ 1,20,000. The following selected costs were incurred
during the year.

Traceable to Direct Materials ₹ 1,78,000

Jobs:

Direct Labour 3,45,000 ₹ 5,23,000

Not traceable to Factory Materials and 46,000

Jobs: Supplies

Indirect Labour 2,35,000

Plant Maintenance 73,000

Depreciation on Factory Equipment 29,000

Other Factory Costs 76,000 ₹ 4,59,000

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Pane's Profit Plan for the year included Budgeted Direct Labour of ₹ 3,20,000 and
Factory Overhead of ₹ 4,48,000. There was no work-in- process on 31st December. What
were Pane’s Overhead Absorption Difference for the year?

Q42. Computation of Under/Over Absorption M 21 (Old)

A Manufacturing Company having strength of 50 workers planned for 300 working days
of 8 hours each. Based on earlier year’s trend, it is estimated that average absenteeism
per worker would be 10 days in addition to eligibility for 20 days annual leave. The
Budgeted Overheads amounted to ₹ 15,12,000
During the year, the Factory worked for 2 extra days to meet the production targets. The
actual average absenteeism per worker was 8 days. Out of 50 workers, 20 took the
annual leave of 20 days, and the remaining took 15 days leave. 450 hours were lost due
to machine breakdown. Overtime worked on production during the year amounted to
650 hours. Actual Overheads amounted to ₹ 15,92,600. You are required to -
1. Calculate Overhead Absorption Rate based on Direct Labour Hours.
2. Determine the under or over absorption of Overheads during the year.

45. Treatment of Under absorption N 21 (New)

XYZ Ltd manufactures a single product. It recovers Factory Overheads at a pre-
determined rate of ₹ 20 per man-day.
During the year, the Total Factory Overheads incurred and the man-days actually
worked were ₹ 35.50 Lakhs and 1.50 Lakh days respectively. Out of the amount of ₹
35.50 Lakhs, ₹ 2.00 Lakhs were in respect of wages for strike period and ₹ 1.00 Lakh
was in respect of expenses of previous year booked in this current year. During the
period, 50,000 units were sold. At the end of the period, 12,000 completed units were
held in stock but there was no Opening Stock of Finished Goods. Similarly, there was no
stock of uncompleted units at the beginning of the period but at the end of the period
there were 20,000 uncompleted units which may be treated as 65% complete in all
respects.
On investigation, it was found that 40% of the unabsorbed overheads were due to factory
inefficiency and the rest were attributable to increase in the cost of Indirect Materials
and Indirect Labour. You are required to:
1. Calculate the amount of Unabsorbed Overheads during the year.
2. Show the accounting treatment of Unabsorbed Overheads in Cost Accounts and pass
Journal Entry.

Q43. Treatment of under-absorption N 89, N 95, N 99, N 00, M 08, N 11

PQR Manufacturers, a small scale enterprise, produces a single product and has
adopted a policy to recover the production overheads of the factory by adopting a single
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blanket rate based on machine hours. The budgeted Production Overheads of the
Factory are ₹ 10,08,000 and budgeted Machine Hours are 96,000.

For a period of first six months of the financial year, following information were
extracted from the books:

• Actual Production Overheads ₹ 6,79,000

• Amount included in the Production Overheads:

(a) Paid as per Court’s order ₹ 45,000

(b) Expenses of previous year booked in current year ₹ 10,000

(c) Paid to workers for strike period under an award ₹ 42,000

(d) Obsolete Stores written off ₹ 18,000

Production and sales data of the concern for the first six months are as under:
Production: Finished Goods 22,000 units
Work-in-Progress (50% complete in every respect) 16,000 units
Sales: Finished Goods 18,000 units
Actual Machine Hours worked during the period were 48,000 hours. It is revealed from
the analysis of information that ’A of the under-absorption was due to defective
production policies and the balance was attributable to increase in costs. Required:
1. Determine the amount of under-absorption of Production Overheads for the period,
2. Show the accounting treatment of under-absorption of Production Overheads, and
3. Apportion the Unabsorbed Overheads over the items.

Q44. Accounting Treatment of Under absorption N 19 (New)

ABS Enterprises produces a product and adopts the policy to recover Factory Overheads
applying blanket rate based on Machine Hours. The cost records of the concern reveal
following information:

Budgeted Production Overheads ₹ 10,35,000

Budgeted Machine Hours 90,000

Actual Machine Hours worked 45,000

Actual Production Overheads ₹ 8,80,000

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Production Overheads (actual) include-

Paid to Worker as per Court’s award ₹ 50,000

Wages paid for Strike Period ₹ 38,000

Stores written off ₹ 22,000

Expenses of previous year booked in current year ₹ 18,500

Production of Finished Goods 30,000 units

Sale of Finished Goods 27,000 units

Overheads was due to defective production planning and the balance was attributable to
increase in costs. You are required -
1. To find out the amount of under-absorbed Production Overheads.
2. To give the ways of treating it in Cost Accounts.
3. To apportion the under-absorbed Overheads over the items.

Q45. Treatment of Under absorption N 17

APP Limited is a manufacturing concern and recovers Overheads at a pre- determined

rate of ₹ 30 per man-day. The following additional information of a period are also
available for you:

Total factory overheads incurred ₹ 51,00,000

Man-days actually worked 1,50,000

Sales (in units) 50,000

Stock at the end of the period:

Completed units 5,000

Incomplete units (50% completed) 10,000

There was no opening stock of finished goods and works in progress. On analyzing the
situation, it was discovered that 60% of the unabsorbed overhead were due to defective
planning and balance were attributable to increase in overhead costs.

How would you treat unabsorbed overheads in Cost Accounts?

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Q46. Treatment of Under absorption N 18

RSJ Produces a single product and absorbs Production Overheads at a pre- determined
Rate. Information relating to a period is as under:

Production Overheads actually incurred ₹ 4,84,250

Overhead Recovery Rate at Production ₹ 1.45 per hour

Actual hours worked 2,65,000 hours

Production:

Finished Goods 17,500 units

Work-in-Progress (50% complete in all respects) 5,000 units

Sales of Finished Goods 12,500 units

At the end of the period, it was discovered that the Actual Production Overheads
incurred included ₹ 40,000 on account of ‘Written off Obsolete Stores’ and wages paid
for the strike period under an award.

It was also found that 30% of the Under-Absorption of Production Overheads was due to
Factory Inefficiency and the rest was attributable to normal Increase in Costs.

Required to –
(a) Calculate the Amount of Under-Absorbed Production Overheads during the period,
(b) Show the Accounting Treatment of Under- Absorption of Production Overheads and
pass Journal Entry.

Q.47 Treatment of Under absorption N 21 (Old)

ABC Ltd produces a single product and has adopted a policy to recover Production
Overheads by adopting a single blanket rate based on machine hours. The Budgeted
Production OH are ₹ 8,58,000 and Budgeted Machine Hours are 1,04,000. At the end of
the financial year, actual Production OH incurred were ₹ 4,90,000. It includes ₹ 42,000
being the wages paid for strike period under an award, ₹ 20,000 on account of written off
obsolete stores and ₹ 8,000 on account of expenses of previous year booked in this
current year.

The production and sales data for the year is as under - Production of Finished Goods
18,000 units, Sale of Finished Goods 16,000 units, WIP (40% complete in all respects)
5,000 units.

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The actual machine hours worked during the period were 40,000. It has been found that
1/3rd of the under absorption of Production OH were due to lack of production
planning, and the rest were attributable to normal increase in costs.

Required:
1. Calculate the amount of under absorption of Production OH during the year.
2. Show the accounting treatment of under absorption of Production OH.
3. Apportion the Unabsorbed Overhead over the items.

Q.48 Treatment of Under absorption - Journal Entries RTP, N 83, N 97

Your Company uses an integrated accounting system and applies overheads on the
basis of “pre-determined” rates. The following figures are extracted from the Trial
Balance as at 31st March.

• Manufacturing OH ₹ 4,26,544 Dr.

• Work-in-Progress ₹ 1,41,480 Dr.

• Manufacturing OH applied ₹ 3,65,904 Dr.

• Finished Goods Stock ₹ 2,30,732 Dr.

• Cost of Goods Sold ₹ 8,40,588 Dr.

You are required to show the profit implications of treating under-absorption under the
following methods -
1. Write off to Profit and Loss Account,
2. Adjustment to Cost of Sales and Inventories of WIP and Finished Goods.

Q49. Single and Dual Recovery Rates for OH M 03

PQR Ltd has its own power plant which has two users, Cutting Department and Welding
Department. When the plans were prepared for the Power Plant, top management
decided that its practical capacity should be 1,50,000 machine hours. Annual Budgeted
Practical Capacity Fixed Costs are ₹ 9,00,000 and Budgeted Variable Costs are ₹ 4 per
machine hour. The following data are available –
Particulars Cutting Welding Total
Dept Dept

Actual Usage during the year (machine 60,000 40,000 1,00,000

hours)

Practical Capacity for each department 90,000 60,000 1,50,000

(machine hours)

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Required:
1. Allocate the Power Plant's Costs to the departments using a single-rate method in
which the Budgeted Rate is calculated using practical capacity, and costs are allocated
based on actual usage.

2. Allocate the Power Plant’s Costs to the departments using the dual-rate method in
which Fixed Costs are allocated based on practical capacity, and Variable Costs are
based on actual usage.

3. Allocate the Power Plant’s Costs to the departments using the dual-rate method in
which Fixed Cost rate is calculated using practical capacity, but Fixed Costs are
allocated to the departments based on actual usage. Variable Costs are allocated based
on actual usage.

Q50. Use of Blanket & Departmental Rates RTP

ABC Ltd manufactures two products A and B. The Company had budgeted Factory OH
of ₹ 3,40,000 and budgeted DLH of 2,00,000 hours. So, the OH recovery rate was pre-
determined at ₹ 1.70 per DLH, and used by the Company for Product Costing purposes.
The department-wise break-up of the OH and DLH were –

Particulars Department X Department Y Total

Budgeted OH ₹ 2,40,000 ₹ 1,00,000 ₹ 3,40,000

Budgeted DLH 1,00,000 hours 1,00,000 hours 2,00,000 hours

Rate per DLH ₹ 2.40 ₹ 1.00 ₹ 1.70 (plant-rate)

• Each unit of Product A requires 4 hours in Department X and 1 hour in Department Y.

Also, each unit of Product B requires 1 hour in Department X and 4 hours in
Department Y.
• This was the first year of the Company's operations. There was no WIP at the end of
the year. However, 2,000 and 6,000 units of Products A and B were on hand at the end
of the year.
• You are informed that the Budgeted Activity was attained.

Required:
1. Determine the production and sales quantities for the above year.
2. Ascertain the effect of using a blanket rate, instead of Department-wise OH rates, on
the Company’s income.
3. Assume that Material and Labour Costs per unit of Product A and B were ₹ 10 and ₹
15 respectively and the Selling Price is fixed by adding 40% to cover Profit and Selling
and Administration OH. Calculate the difference in the Selling Price due∙ to the use of
plant-wise OH rate, instead of Department-wise OH rates?

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Q51. Use of Supplementary Overhead Recovery Rate - Initial and Final Cost
Estimate

A Light Engineering Factory fabricates machine parts to customers. The Factory

commenced fabrication of 12 Nos. machine parts to customers' specifications and the
expenditure incurred on the job for the week ending 215t August, is given (₹):

Direct Materials {all items) 78.00

Direct Labour (manual) 20 hours @ ₹ 1.50 per hour 30.00

Machine Facilities: Machine No. I: 4 hours @ ₹ 4.50 18.00

Machine No. II: 6 hours @ ₹ 6.50 39.00 57.00

Total 165.00

Overheads @ ₹ 0.80 per hour on 20 manual hours 16.00

Total Cost 181.00

The Overhead Rate of ₹ 0.80 per hour is based on 3,000-man hours per week, similarly,
the Machine Hour Rates are based on the normal working of Machine Nos. I and II for 40
hours out of 45 hours per week.

After the close of each week, the Factory levies a Supplementary Rate for the recovery of
Full Overhead Expenses on the basis of actual hours worked during the week. During
the week ending 21st August, the Total Labour Hours worked was 2,400 and Machine
Nos. I and II had worked for 30 hours and 32½ hours respectively.

Prepare a Cost Sheet for the job for the fabrication of 12 Nos. machine parts duly levying
the Supplementary Rates.

Q52. Use of rates based on Actual OH incurred - Effect on WIP and FG RTP

A Manufacturing Company absorbs OH into the cost of its 3 production departments by

means of pre-determined departmental rates per Direct Labour Hour (DLH). The
following data is obtained for the year –

Dept OH Actual Predetermined Total OH DLH contained in

incurred DLH OH rate absorbed
(Hrs) WIP FG
(Hours) (Hours)

A ₹ 25,000 ₹ 0.50 ph ₹ 12,500 3,000 7,000

10,000

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B ₹ 84,000 ₹ 0.30 ph ₹ 25,200 14,000 8,000

37,800

C ₹ 45,000 ₹ 0.40 ph ₹ 18,000 2,000 4,000

22,500

1. Calculate for each department, the Recovery Rate per DLH, based on OH actually
incurred.
2. Calculate the extent to which the values of WIP and Finished Goods for the year
should be increased / decreased for each department, in view of the OH rates based on
OH actually incurred.

Q53. Apportionment of Selling and Distribution OH M 96

A Company is making a study of the relative profitability of the two products - A and B.
In addition to Direct Costs, Indirect Selling and Distribution Costs to be allocated
between the two products are as under:

Insurance Charges for ₹ 78,000 Salesmen Salaries ₹

Inventory (finished) 8,50,000

Storage Costs ₹ Salesmen Commission ₹

1,40,000 6,50,000

Packing and Forwarding ₹ Invoicing Costs ₹

Charges 7,20,000 4,50,000

Other details are as under -

Particulars Product A Product B

Selling price per unit ₹ 500 ₹ 1,000

Cost per unit (exclusive of Indirect S&D Costs) ₹ 300 ₹ 600∙

Annual Sales in units 10,000 units 8,000 units

Average Inventory 1,000 units 800 units

Number of invoices 2,500 nos. 2,000 nos.

One unit of product A requires a storage space twice as much as product B. The cost to
pack and forward one unit is the same for both the products. Salesmen are paid Salary
plus Commission at 5 % on Sales and equal amount of efforts are put forth on the sales
of each of the products. You are required to:

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• Set up a schedule showing apportionment of Indirect Selling and Distribution Costs

between the two products.
• Prepare a statement showing the relative profitability of the two products.

Q54. Apportionment of SOH

APPORTION Ltd produces a single product in three sizes A. B and C. Prepare a

statement showing the Selling and Distribution Expenses apportioned over these three
sizes applying the appropriate basis for such apportionment in each case from the
particulars indicated. Express the total of the costs so apportioned to each size as: (1)
Cost per unit sold - (nearest paise,) and (2) Percentage of Sales turnover (nearest two
places of decimal). The expenses are as under –

Expenses ₹ Basis of Apportionment

Salesmen Salaries 10,000 Direct Charges

Sales Commission 6,000 Sales Turnover

Sales Office Expenses 2,096 Number of orders

Advertising General 5,000 Sales Turnover

Advertising Specific 22,000 Direct Charges

Packing Expenses 3,000 Total Volume in cubic feet of produces sold

Delivery Expenses 4,000 Total Volume in cubic feet of produces sold

Warehouse Expenses 1,000 Total Volume in cubic feet of produces sold

Credit Collection 1,296 Number of orders

Expenses

Data available relating to the three sizes are as follows –

Particulars Total A B C

Number of Salesmen (all paid 10 4 5 1

same Salary)

Units sold 10,400 3,400 4,000 3,000

Number of Orders 1,600 700 800 100

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Percentage of Specific 100% 30% 40% 30%

Advertising

Sales Turnover ₹ ₹ 58,000 ₹ 80.000 ₹ 62,000

2,00,000
Volume in cu. ft. per unit of - 5 8 17
finished product

Q55. Apportionment of SOH

A Company which sells four products, some of them unprofitable, proposes

discontinuing the sale of one of them. The following information is available regarding
income, costs and activity for the year ended 31st March.

Particulars Product Product Product Product

A B C D

Sales (₹) 3,00,000 5,00,000 2,50,000 4,50,000

Cost of Sales (₹) 2,00,000 4,50,000 2,10,000 2,25,000

Area of Storage (Sq. Ft.) 50,000 40,000 80,000 30,000

Number of Parcels sent 1,00,000 1,50,000 75,000 1,75,000

Number of Invoices sent 80,000 1,40,000 60,000 1,20,000

Selling & Distribution Overheads and the basis of allocation are;

₹ Basis of Allocation to
Products

Fixed Costs: Rent & Insurance 30,000 Sq. Ft.

Depreciation 10,000 Parcel

Salesmen's Salaries & 60,000 Sales Volume

Expenses
Administrative Wages & 50,000 No. of Invoices
Salaries
Variable Costs:
Packing Wages ₹ 0.20
& Materials per
parcel

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Commission 4% of
Sales
Stationery ₹ 0.10
per
Invoice

You are required to prepare Profit & Loss Statement, showing the Percentage of Profit or
Loss to Sales for each product.

Q.56 Overheads Apportionment to Products N 83

A Company manufactures building bricks and firebricks. Both products require two
processes –
(a) Brick forming & (b) Heat-treating.
The time required for the two bricks and other particulars are given below –

Particulars Building Bricks Fire Bricks

Forming per 100 bricks 3 hours 2 hours

Heat Treatment per 100 2 hours 5 hours

bricks

Production during the 1,30,000 units 70,000 units

month

The total costs of the two departments for the month were Forming ₹ 21,200 and Heat
Treatment ₹ 48,800. Prepare a Statement of Manufacturing Costs for the two varieties of
bricks

Q57. Overhead Absorption and Performance Report N 93

Amarnath Ltd manufactures two products A and B. The manufacturing division consists
of two Production Departments P1 and P2 and two Service Departments S1 and S2.
Budgeted Overhead Rates are used in the Production Departments to absorb Factory
Overheads to the products. The rate of Department Pt is based on Direct Machine Hours,
while the rate of Department P2 is based on Direct Labour Hours, tn applying overheads,
the pre-determined rates are multiplied by actual hours.

For allocating the Service Department Costs to Production Departments, the basis
adopted is as follows -
• Cost of Department St to Departments P1 and P2 equal, and
• Cost of Department S2 to Departments P1 and P2 in the ratio of 2:1 respectively.
The following budgeted and actual data are available - ANNUAL PROFIT PLAN DATA
• Budgeted Factory OH:
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Department P1 P2 S1 S2

Factory OH budgeted for the ₹ ₹ ₹ 6,00,000 ₹ 4,50,000

year 25,50,000 21,75,000

• Budgeted output in units: Product A - 50,000, Product B - 30,000.

• Budgeted Raw-Material Cost per unit: Product A-₹ 120 Products-₹ 150.
• Ail materials are used in Department P1 only.
• Average Wage Rates budgeted in Dept P2 Product A - ₹ 72 p.h. Product B-₹ 75 p.h.
• Budgeted time required for production per unit: Product A Product B

Department P1: 1.5 Machine Hours 1.0 Machine Hour

Department P2: 2 Direct Labour Hours 2.5 Direct Labour Hours

ACTUAL DATA: (FOR THE MONTH OF JULY)

• Units actually produced: Product - A - 4,000 units, Product- B 3,000 units.

• Actual Direct Machine Hours worked in Dept P1: On Product A-6,100 hours,
Product B-4,150 hours.

• Actual Direct Labour Hours worked in Dept R∑: On Product A - 8,200 hours,
Product B - 7,400 hours.

• Direct Costs actually incurred are as under - Product A Product B

■ Materials ₹ 4,89,000 ₹ 4,56,000

■ Wages ₹ 5,91,900 ₹ 5,52,000

• Overheads actually incurred are -

Department P1 P2 S1 S2

OH incurred in July ₹ 2,31,000 ₹ 2,04,000 ₹ 60,000 ₹ 48,000

Required:
1. Compute the Pre-Determined Overhead Rate for each Production
Department.
2. Prepare a Performance Report for July, that will reflect the Budgeted Costs and Actual
Costs.

Q58. Profit Statement under Absorption Costing - Equivalent Production RTP

A new Subsidiary of a Group of Companies was established for manufacture and sale of
Product “Super”. During the first year of operations, 90,000 units were sold at ₹ 20 per
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unit. At the end of the year, the Closing Stocks were 8,000 units in Finished Goods Store
and 4,000 units in Work-In-Progress, which were complete as regards material content
but only half complete as to Labour & OH. Assume no Opening Stocks. The WIP A/c had
been debited during the year with the following costs –

• Direct Materials ₹ 7,14,000 • Variable Overheads ₹ 1,00,000

• Direct Labour ₹ 4,00,000 • Fixed Overheads ₹ 3,50,000

Selling and Administration Costs for the year were as under –

Particulars Variable Cost per unit Fixed Costs
sold

Selling ₹ 1.50 ₹ 2,00,000

Administration ₹ 0.10 ₹ 50,000

The Accountants of the Subsidiary Company had prepared a Profit Statement on the
absorption costing principle, which showed a profit of ₹ 11,000. You are required to -

1. Prepare a statement showing the equivalent units produced and the cost of
production of one unit of Product “Super” by element of cost and in total,

2. Prepare a profit statement on absorption costing principle, which agrees with the
Accountant’s Statement.

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