Management Accounting Factory overhead Apportionment of Cost.

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Presentation transcript:

Management Accounting Factory overhead Apportionment of Cost

Cost Allocation Cost that can be identified with a specific cost center.

Apportionment Cost that can not be identified with a specific cost centre but must be shared out between two or more center.

Apportionment & Allocation Non ReciprocalReciprocal Repeated allocation method Algebraic method

Exercise Following data are extracted form the estimates prepared by Plastic Pots & Furniture for the accounting year: - ElectricityAfs. 54,000 Bonus Pay21,000 Factory Rent240,000 Power747,000 Depreciation195,000

Exercise Costs of service departments are prorated only to production departments: - Canteen Cost Apportion on No. of employees ratio. Machine Maintenance in the ratio of 1:2:1.

Cost centers Cost centers are area of a business of which cost can be identified.

Exercise Following further data are also available: Production DepartmentService Department MoldingMachiningFinishingCanteenMaintenance Materials (Afs.) 300,000130,00045,00040,00075,000 Wages (Afs.) 400,000750,000755,00095,000100,000 Cost of Assets (Afs.) 125,000250,000130,00070,00075,000 Horse Power Hour 7001, Area in Sq. Yard Metered Units 6,000 7,0002,0003,000 No. of Employees

Solution Plastic Pots & Furniture Work Sheet Apportionment of Factory Overhead Product Deptt. Cost Heads Production DepartmentService Department Total MoldingMachiningFinishingCanteen Machine Maintenance Allocated Cost (Identified) Materials 40,00075,000115,000 Labor Wages 95,000100,000195, ,000175,000310,000 Electricity 13,500 15,7504,5006,75054,000 Bonus Pay 4,0007,5007, ,00021,000 Factory Rent 60,000 80,00020, ,000 Power 175,000350,000150,00022,00050,000747,000 Depreciation 37,50075,00039,00021,00022,500195,000 c/f 203,450275,250156,700

solution b/f 203,450275,250156,700 No. of Employees 48,82861,03577,311(203,450)16, ,526 Division (1:2:1) 72,882145,76372,881(291,526) Total 411,710712,798442,792

Apportionment Electricity Basis Metered units CanteenMachine Maintenance MoldingMachiningFinishing 2,0003,0006,000 7,000 Total 24, /243/246/24 7/24

Apportionment Electricity Molding54,000/24*613,500 Machining54,000/24*613,500 Finishing54,000/24*715,750 Canteen54,000/24*24,500 Machine maintenance 54,000/24*36,750

Apportionment Bonus Pay Basis Labor wages MoldingMachiningFinishingCanteenMachine Maintenance 400,000750,000755,00095,000100,000 Total 2,100, / / /210095/ /2100

Apportionment Bonus Pay Molding 21,000 /2100*4004,000 Machining 21,000 /2100*7507,500 Finishing 21,000 /2100*7557,550 Canteen 21,000 /2100*95950 Machine maintenance 21,000 /2100*1001,000

Apportionment Rent Basis Area Occupied MoldingMachiningFinishingCanteenMachine Maintenance Total / /72060/720

Apportionment Rent Molding 240,000/720*180 60,000 Machining 240,000/720*180 60,000 Finishing 240,000/720*240 80,000 Canteen 240,000/720*60 20,000 Machine maintenance 240,000/720*60 20,000

Apportionment Power Basis Horse Power MoldingMachiningFinishingCanteenMachine Maintenance 7001, Total 2, /2, / / /298888/2988

Apportionment Power Molding 747,000/2988* ,000 Machining 747,000/2988* ,000 Finishing 747,000/2988* ,000 Canteen 747,000/2988*200 22,000 Machine maintenance 747,000/2988*88 50,000

Apportionment Deprecation Basis Power MoldingMachiningFinishingCanteenMachine Maintenance 125,000250,000130,00070,00075,000 Total 650, /650250/650130/65070/65075/

Apportionment Deprecation Molding 195,000/650*125 37,500 Machining 195,000/650*250 75,000 Finishing 195,000/650*130 39,000 Canteen 195,000/650*70 21,000 Machine maintenance 195,000/650*75 22,500

Reciprocal Appropriation (Repeated Appropriation Method MachiningFinishingMaintenanceAir-conditioning 100,00070,00040,00030,000 Allocated indirect cost 240,000 MachiningFinishingAir-conditioning Maintenance Appropriation 60%15%25% Air Conditioning 70%25%5%

MachiningFinishingMaintenanceAir-conditioning 100,00070,00040,00030,000 ProductionService Allocate Indirect cost (240,000) 24,000 6,000 (40,000) 10,000 28,000 10,000 2,000 (40,000) 1, (2000) (500) (25) (6.50) 153,57086,430 Maintenance Air conditioning Maintenance Air conditioning Maintenance Air conditioning Solution