1. Cost Accounting FOH Lecture-17 Main Ahmad Farhan (ACA)

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

3. 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) 1,200 300 (2000) 500 350 125 25 (500) 15 3.50 (25) 6.50 5 1.50 0.50 (6.50) 153,57086,430 Maintenance Air conditioning Maintenance Air conditioning Maintenance Air conditioning Solution Total = 240,000

4. Overhead Absorption Rate. Machining Cost 153,570= 5 /hour Estimated hours30,714 Finishing Cost 86,430= 30 per unit No of units produce 2,881 == =

5. Blanket Rate

6. Total FOH Cost Direct Cost 240,000 200,000 = 120% = = x 100

7. High & Low Capacity Method

8. Applied FOH cost (capacity attained x Overhead applied rate) Less Estimated FOH {Fixed FOH cost + (capacity attained x variable rate)} Volume variance

9. Example Capacity/Activity level (Machine hours) Estimated FOH Cost (Rs) 400040,000 6,00050,000 10,00070,000

10. Solution High capacity Level 10,00070,000 Low capacity Level 4,00040,000 6,00030,000 Variable FOH Rate= 30,000=5 /hr. 6,000 Machine hrs FOH cost

11. Calculate Variable & Fixed Cost Variable FOH CostFixed FOH Cost 4,000 x 5 = 20,00040,000-20,000 = 20,000 6,000 x 5 = 30,00050,000-30,000 = 20,000 10,000 x 5=50,00070,000-50,000 = 20,000 Capacity level (Hrs) Estimated FOH Cost (Rs) 400040,000 6,00050,000 10,00070,000

12. Overhead Applied Rate Normal capacity level = 5000 hrs Actual FOH cost = Rs.49,300 Actual capacity allowed = 5,800 hrs Over applied rate = 45,000 = Rs. 9 /hr 5,000 Estimated FOH Cost = 20,000 + (5800 x 5) 20,000 + 29,000 = 49,000 Applied FOH Cost = 5,800 x 9/hr = 52,200

13. Budgeted Variance & Volume Variance Volume Variance Applied FOH cost 52,000 Less Estimated FOH cost 49,000 Unfavorable32,00 Budget Variance Estimated FOH cost49,300 Less Actual FOH cost49,000 Favorable 300

14. Total Variance Volume variance (Unfav)3200 Budgeted variance (Fav) 300 Applied FOH 52,200 Less Actual FOH 49,300 2900

15. Accounting Entries For Actual & Applied FOH Actual cost FOH control Material Payroll Expenses Voucher Payable/creditors Applied FOH cost Work in process FOH Applied

16. Accounting Entries For Actual & Applied FOH Closing entry 1- FOH applied FOH control 2- FOH control 100 FOH applied 80 Under applied 20 3- Under applied 20 FOH control 20

17. Accounting Entries For Actual & Applied FOH 1- FOH control 100 Over applied 10 FOH applied 110 2- FOH control 10 Over applied 10

18. Accounting Entries For Actual & Applied FOH Charge to cost of goods sold Cost of goods sold 20 Under applied FOH20 Charge to entire production Work in process7 Finish goods8 Cost of goods sold 5 Under applied FOH20 Charge to net income Income statement 20 Under applied FOH20

19. Accounting Entries For Actual & Applied FOH Charge to cost of goods sold Over applied FOH 20 Cost of goods sold 20 Charge to entire production Over applied FOH 20 Work in process7 Finished goods8 Cost of goods sold 5 Charge to net income Over applied FOH20 Income statement 20