Overhead distribution

PARAMJIT SHARMA
 Departmentalization

1 Process of dividing the factory into number

of Segments Is called Departmentalization

P1 P2 P3 S1 S1

Prod Departments Service Dept.

PARAMJIT SHARMA
 Departmentalization

2 Process of allocating and apportioning

POHEs to different departments or
cost centers (Prod & Service ) Factory
Overheads

P1 P2 P3 S1 S1

Prod Departments Service Dept.

PARAMJIT SHARMA
 Departmentalization

Factory
Overheads
Allocation &
Apportionment

P1 P2 P3 S1 S1

Prod Departments Service Dept.

PARAMJIT SHARMA
 Service Departments
Repair Maintenance
Department Department Power House

Canteen Purchase Fire Protection

Tool Room Personnel

Department Stores

Boiler
House Time-Keeping Transport

PARAMJIT SHARMA
 Distribution of
Overhead

ALLOCATION APPORTIONMENT

Specific Common
Costs Costs

PARAMJIT SHARMA
 Distribution of
Overhead

ALLOCATION
Allocating whole
amount Of an item
of POHs to the
department for which
The expenditure was
incurred
Specific
Costs

PARAMJIT SHARMA
 Distribution of
Overhead

APPORTIONMENT

Common costs are apportioned

Amongst different departments
or cost centers on some basis
Common
Costs

PARAMJIT SHARMA
Principal Basis of Apportionment Of Overheads

Floor Area

Capital Value Of Assets

Number Of Employees

Machine Hours

Direct Labour Hours

Light Points

Kilowatt Hours

Technical Analysis

PARAMJIT SHARMA
BASIS FOR APPORTIONMENT

Rent, Rates & Taxes, Lighting & Heating Floor Area

Insurance & depreciation of Building,
Cost of repairs & maintenance of Occupied
Building, Air Conditioning

Insurance & Depreciation on Plant &

Capital
Machinery, maintenance of PM, Value
Insurance on building, etc

PARAMJIT SHARMA
BASIS FOR APPORTIONMENT

No.Of
Welfare Expenses, time-Keeping ,pay-roll
Office, Canteen, Recreation, Supervision Employees
Medical Expenses

Machine
Repairs & Maintenance of Plant &
Machinery Hours

PARAMJIT SHARMA
BASIS FOR APPORTIONMENT

Direct Work’s Manager’s Remuneration, Salary of

Supervisors etc
Labour
Hrs

Light Points
Electricity Charges
Or
Kilowatt Hours

PARAMJIT SHARMA
BASIS FOR APPORTIONMENT

Technical Where not possible to apportion on some

Bases Technical estimate is made
Estimate

Horse
Motive Power Expenses
Power

PARAMJIT SHARMA
BASIS FOR APPORTIONMENT

Value or
Weight of
Materials
Store Keeping Expenses

Truck Mileage
Tonnage
Truck Hours
Transport Service Expenses
No.Of Pakages

PARAMJIT SHARMA
PRINCIPLES OF APPORTIONMENT

Utility or
Service Survey Method
Principle

Efficiency
Ability To Pay
Principle

PARAMJIT SHARMA
PRINCIPLES OF APPORTIONMENT

Utility or
Service
Principle

Service or Benefits
received
By the department

PARAMJIT SHARMA
PRINCIPLES OF APPORTIONMENT

Ability To Pay

What the Traffic can bear

Basis of Sales or Profit

PARAMJIT SHARMA
 PRINCIPLES OF APPORTIONMENT

Survey Method

When Difficult to select Basis

Production Manager’s Salary

(Time spent in Each Dept)

PARAMJIT SHARMA
PRINCIPLES OF APPORTIONMENT

Out put as the basis

Higher Production
Low Overhead Rate
Low Production
High OH Rate
Efficiency
Principle

PARAMJIT SHARMA
 Quick Check

Identify the Basis for following Overheads

Rent Floor Area
Plant Repairs Value of Plant
Power Machine Hours/HP/VM
Depreciation of Building Value Of Building
Building Repairs Value Of Building
Insurance Of Building Floor Area
Fire Insurance of Stock Value Of Stock
Lighting Expenses No.Of Light Points
Supervision No.Of Employees
Power Kilowatt/Value of Plant
ESI Direct Wages
Employer’s Cont. to PF Direct Wages
Amenities To Staff No.Of Employees/Wages
Canteen No.Of Employees
Gn. Overheads Direct Wages

PARAMJIT SHARMA
 Summary Of Departmental Overhead Distribution

Particulars Basis Total Production Departments

(Rs) A B C D
(Rs) (Rs) (Rs) (Rs)
Rent Area(15:11:9:5) 2,000 750 550 450 250
Plant Maintenance Value Of Mch. (4:3:2:1) 1,200 480 360 240 120
Depreciation Value Of Mch. (4:3:2:1) 900 360 270 180
90
Lighting Area(15:11:9:5) 200 75 55 45
25
Insurance Stock Value(5:3:2) 1,000 500 300 200
--
Employer's Cont to PF Wages (4:3:2:1) 300 120 90 60
30
Energy Total Value Of Mch. (4:3:2:1) 10,400
1,800 4,205
720 2,965
540 2,135
360 1,095
180
Supervision No.Of Emp (6:4:3:2) 3,000 1,200 800 600
400

PARAMJIT SHARMA
 Summary Of Departmental Overhead Distribution

Particulars Basis Total Production Dept. SD

(Rs) A B C D
(Rs) (Rs) (Rs) (Rs)
Rent Area 10,000 3,750 2,750 2,250 1,250
Repairs To Plant Value Of Plant 6,000 2,400 1,800 1,200 600
Depreciation “ 4,500 1,800 1,350 900 450
Lighting Light Points 1,000 375 275 225 125
Supervision No Of Employees 15,000 6,000 4,500 3,000 1,500
Fire Insurance Value Of Stock 5,000 2,500 1,500 1,000 -
Power Value Of Plant 9,000 3,600 2,700 1,800 900
ESI Wages 1,500 600 400 300 200

Total 52,000 21,500 15,27510,675 5,025

PARAMJIT SHARMA
Redistribution of Overheads
Reapportionment of Overheads
Secondary Distribution Of Overheads

PARAMJIT SHARMA
 Service Department Cost
Re-Apportionment
Production Service
Departments Departments

Carry out the Provide support

central purposes that facilitates the
of an organization. activities of production
departments.

PARAMJIT SHARMA
 The Need for Cost
Re-Apportionment
How are service First, we identify the factor
department costs that drives costs in the
charged to operating service department.
departments? This cost driver is used
as the apportionment base.

PARAMJIT SHARMA
The Need for Cost Apportionment

Second, we measure the

consumption of the
apportionment base in the
operating departments.

PARAMJIT SHARMA
The Need for Cost Apportionment
Third, we apportion
the service
department cost
based on the
relative amount of
the apportionment base
used in each
operating department.

PARAMJIT SHARMA
 The Need for Cost Apportionment

What happens to Apportioned service department

service department costs become a part of
costs after they the overhead in each
are apportioned to operating department.
operating
departments?

PARAMJIT SHARMA
 The Need for Cost Apportionment
First Stage Apportionment
Service department costs are
Service apportioned to operating
Department departments.
(Cafeteria) Operating
Department
Service (Machining)
The
Department
Products
(Accounting) Operating
Department
Service (Assembly)
Department
(Personnel) PARAMJIT SHARMA
 The Need for Cost Apportionment
Second Stage Apportionment
Operating department overhead costs and
apportioned service department costs are
Service applied to products.
Department
(Cafeteria) Operating
Department
Service (Machining)
The
Department
Products
(Accounting) Operating
Department
Service (Assembly)
Department
(Personnel) PARAMJIT SHARMA
Selecting Apportionment Bases
Personnel: Custodial:
Number of Square
employees Criteria footage

Receiving: Cafeteria:
Units Easiest Number of
handled employees

Accounting:
Security: Staff Power:
Square hours Kilowatt
footage hours
PARAMJIT SHARMA
 Re- apportionment Basis

Purchase No of Purchase Orders or value of Materials

Department Purchased for each Production Department

•Value or Quantity of Materials Issued

Stores
•No. Of Materials Requisitions

PARAMJIT SHARMA
 Re- apportionment Basis

Weight & Distance Internal Transport

Inspection Hrs. Devoted to each

inspection
Department

PARAMJIT SHARMA
 Re- apportionment Basis

Time Keeping,
Security
Canteen
Welfare •Number Of Employees
Recreation •Total Labour Hours or
•Wages or Salaries
Medical
Personnel
Pay Roll

PARAMJIT SHARMA
 Re- apportionment Basis

Hrs. Devoted or Worked for Maintenance

Each Department Department

Factory
No .Of Employees
Office

PARAMJIT SHARMA
 Re- apportionment Basis

Building
Relative Area Of Each Deptt Service Deptt

Boiler
% Of Steam Utilized
House

PARAMJIT SHARMA
 Interdepartmental Services
Problem
Re Apportioning costs when service departments
provide services to each other

Solutions
Direct Method
Step method
Reciprocal method
PARAMJIT SHARMA
 Direct Method
Service Operating
Interactions Department Department
between service (Cafeteria) (Machining)
departments are
ignored and all
costs are
allocated directly
to operating Service Operating
departments. Department Department
(Custodial) (Assembly)

PARAMJIT SHARMA
 Direct Method Example
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Number of employees 15 10 20 30
Square feet occupied 5,000 2,000 25,000 50,000

Service Department Apportionment Base

Cafeteria Number of employees
Custodial Square feet occupied

PARAMJIT SHARMA
 Direct Method Example
Service Departments Operating Departments
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation ? ? ?
Custodial allocation ? ? ?
Total after allocation ? ? ? ?

PARAMJIT SHARMA
 Direct Method Example
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation (360,000) 144,000 ?
Custodial allocation ? ? ?
Total after allocation INR 0 ? ? ?

20
INR 360,000 × 20 + 30 = INR 144,000

Apportionment base: Number of employees

PARAMJIT SHARMA
 Direct Method Example
Service Departments Operating Departments
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation (360,000) 144,000 216,000
Custodial allocation ? ? ?
Total after allocation INR 0 ? ? ?

30
INR 360,000 × = INR 216,000
20 + 30

Apportionment base: Number of employees

PARAMJIT SHARMA
 Direct Method Example
Service Departments Operating Departments
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation (360,000) 144,000 216,000
Custodial allocation (90,000) 30,000 ?
Total after allocation INR 0 INR 0 INR I74,000) ?

25,000
INR 90,000 × = INR 30,000
25,000 + 50,000

Apportionment base: Square feet occupied

PARAMJIT SHARMA
 Direct Method Example
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation (360,000) 144,000 216,000
Custodial allocation (90,000) 30,000 60,000
Total after allocation INR 0 INR 0 INR 174,000 INR 276,000

50,000
INR 90,000 × = INR 60,000
25,000 + 50,000

Apportionment base: Square feet occupied

PARAMJIT SHARMA
 Overhead Analysis Sheet

Items Basis Total Production Department Service Department

(Rs.)
P1 P2 P3 Office Workshop

Indirect wages Actual 25,000 3,000 3,000 4,000 10,000 5,000

Indirect materials Actual 10,950 2,000 3,000 3,000 1,100 1,850
General overhead Direct wages 1,500 400 500 600 - -
(4:5:6)
Amenities to staff No.of employees 12,500 3,000 2,500 3,000 2,500
(6:5:6:3:5) 1,500
Employer’s Direct Wages 1,200 320 400 480 -
contribution to E.S.I. (4:5:6) -
Power H.P. of machine 3,800 600 1,600 1,500 100
X -
Machine hours
worked
(6:16:15:1)
Depreciation 15% of value of 15,750 4,500 5,250 3,750 2,250
machinery -
70,700 13,820 16,250 16,330 12,600 11,700
Apportionment of Machine hours
2,600 5,200 3,900 - (-) 11,700
workshop overhead (2:4:3)
Apportionment of
office overhead Direct wages (-12,600
3,360 4,200 5,040 -
(4:5:6)
Allocated overhead Total 19,780 25,650 25,270 - -
PARAMJIT SHARMA
 Bharat Engineering Works Departmental
Overhead Distribution Statement (For 12 Months)
Basis of Total Production Deptts. Service
Particulars of Distribution Rs. Dept.
Expenses
A B C S
Rent Floor space 36,000 9,000 7,500 13,500 6,000
(30:25:45:20)
Power H.P. of machine 8,250 3,250 1,500 1,500 2,000
(65:30:30:40)
Indirect wages Direct Wages 5,200 1,200 1,400 1,800 800
(12:14:18:8)
Depreciation of Value of machine 22,000 5,500 6,600 8,800 1,100
machinery (50:60:80:10)
Electricity Light points 5,600 1,400 1,400 1,800 1,000
(7:7:9:5)
Canteen No. of workers 6,500 1,000 1,500 3,000 1,000
expenses (2:3:6:2)
Direct wages Actual 8,000 --- --- --- 8,000
91,550 21,350 19,900 30,400 19,900
Re-distribution of expenses of service
department to the production departments on
+5,970 +3,980 +9,950 -19,900
the basis of service rendered 30%: 20%:50%
Allocated overhead total (A) 27,320 23,880 40,350 Nil

Effective labour hours (see workings)

3,200 4,800 9,600
(No. of worker x working hours) (B)
Labour hour rate (A ÷ B) 8.5375 4.975 4.203
PARAMJIT SHARMA
 Step Method
Service Operating
Department Department
Once a service (Cafeteria) (Machining)
department’s costs
are apportioned,
other service
department costs
are not allocated
back to it.
Service Operating
Department Department
(Custodial) (Assembly)

PARAMJIT SHARMA
 Step Method
Service Operating
Department Department
Custodial will (Cafeteria) (Machining)
have a new
total to Apportion
to operating
departments; its
own costs plus
those costs Service Operating
allocated from Department Department
the cafeteria. (Custodial) (Assembly)

PARAMJIT SHARMA
 Step Method

1 Identify the SD which renders service to larger No’s of other Deptts

2 Distribute its Costs to other Deptts , Including service Department

3 Identify the next service Department. Which renders service to the

next largest No’s

4 Continue the process till Amount is Exhausted

5 If all SD renders service to = No of Departments. Than cost of SD

with largest amount be taken first

PARAMJIT SHARMA
 Step Method Example
We will use the same data used
in the direct method example.
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Number of employees 15 10 20 30
Square feet occupied 5,000 2,000 25,000 50,000

Service Department Apportionment Base

Cafeteria Number of employees
Custodial Square feet occupied

PARAMJIT SHARMA
 Step Method Example
Service Departments Operating Departments
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation ? ? ? ?
Custodial allocation ? ? ?
Total after allocation ? ? ? ?

Apportion Cafeteria costs first since

it provides more service than Custodial.

PARAMJIT SHARMA
 Step Method Example
Service Departments Operating Departments
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation (360,000) 60,000 ? ?
Custodial allocation ? ? ?
Total after allocation INR 0 ? ? ?

10
INR 360,000 × = INR 60,000
10 + 20 + 30

Apportionment base: Number of employees

PARAMJIT SHARMA
 Step Method Example
Service Departments Operating Departments
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation (360,000) 60,000 120,000 ?
Custodial allocation ? ? ?
Total after allocation INR 0 ? ? ?

20
INR 360,000 × = INR 120,000
10 + 20 + 30

Apportionment base: Number of employees

PARAMJIT SHARMA
 Step Method Example
Service Departments Operating Departments
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation (360,000) 60,000 120,000 180,000
Custodial allocation ? ? ?
Total after allocation INR 0 ? ? ?

30
INR 360,000 × = INR 180,000
10 + 20 + 30

Apportionment base: Number of employees

PARAMJIT SHARMA
 Step Method Example
Service Departments Operating Departments
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation (360,000) 60,000 120,000 180,000
Custodial allocation (150,000) ? ?
Total after allocation INR 0 INR 0 ? ?

New total = INR 90,000 original custodial cost

plus INR 60,000 apportioned from the cafeteria.

PARAMJIT SHARMA
 Step Method Example
Service Departments Operating Departments
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation (360,000) 60,000 120,000 180,000
Custodial allocation (150,000) 50,000 ?
Total after allocation INR 0 INR 0 INR 170,000 ?

25,000
INR 150,000 × = INR 50,000
25,000 + 50,000

Apportionment base: Square feet occupied

PARAMJIT SHARMA
 Step Method Example
Service Departments Operating Departments
Cafeteria Custodial Machining Assembly
Departmental costs
before allocation INR 360,000 INR 90,000 INR 400,000 INR 700,000
Cafeteria allocation (360,000) 60,000 120,000 180,000
Custodial allocation (150,000) 50,000 100,000
Total after allocation INR 0 INR 0 INR 170,000 INR 280,000

50,000
INR 150,000 × = INR 100,000
25,000 + 50,000

Apportionment base: Square feet occupied

PARAMJIT SHARMA
 Comparison of Methods

Totals after allocation

Machining Assembly
Method Department Department
Direct INR 574000 INR 976000
Step 570,000 980,000
Reciprocal Results are similar to step method

PARAMJIT SHARMA
 SECONDARY OVERHEAD DISTRIBUTION SUMMARY
Particulars Total Rs. Base Service Departments (Rs.) Production Departments
P Q R S X Y Z
Factory 5,95,000 Given 45,000 75,000 1,05,000 30,000 1,93,000 64,000 83,000
overhead

Add :
Service
Dept.costs

0 No. of -45,000 5,000 4,000 5,000 10,000 12,500 8,500

P
Employees
(50:40:50:
100:125:85)

DLHs
0 Rs.80,000 in -80,000 24,000 12,000 16,000 12,000 16,000
Q
(6:3:4:3:4)

Area
R 0 (Rs.1,33,000 -1,33,000 19,000 57,000 28,500 28,500
in
(10:30:15:
15)

DLHs
0 (Rs.66,000 -66,000 24,000 18,000 24,000
S in 4:3:4)

Total 5,95,000 3,00,000 1,35,000 1,60,000

OHEs of
prod.depts
PARAMJIT SHARMA
 Reciprocal Services Method
Service Operating
Department Department
Interdepartmental (Cafeteria) (Machining)
services are given
full recognition
rather than partial
recognition as with
the step method. Service Operating
Department Department
(Custodial) (Assembly)
Because of its mathematical complexity,

the reciprocal method is rarely

PARAMJIT used.
SHARMA
 Reciprocal Services Methods

Trial & Error

Method

Repeated
Distribution
Method

Algebraic
Simultaneous
Equation
Method
PARAMJIT SHARMA
 Reciprocal Services Methods

Trial & Error

Method

Cost Of one Service Dept (Say A ) is apportioned

To another Service Dept (Say B) based on service rendered

The cost of another dept (B) plus its share

In the cost of first service department (A)
Is again apportioned to first service department

The amount so apportioned to A will again be apportioned

to the service department B

The process continues till amount becomes negligible

PARAMJIT SHARMA
 Calculation Of Total Costs Of Service Departments

Service Departments (Rs)

X Y
Total Exp as per Primary Distribution 23,400 30,000

Charge 10% 0f Rs 23,400 (X) to Y 2,340

20% of Rs.32,340 (Y) to X 6,468

10% of Rs.6,468 (X) to Y 647
20% of Rs.647 (Y) to X 129

10% of Rs.129 (X) to Y 13

(Since Rs.3
20%toof
beRs.12
apportioned
(Y) to X is very small 3
distribution process is stopped )

Total 30,000 33,000

PARAMJIT SHARMA
 Secondary Overhead Distribution Summary
Production Departments Total Rs.
Particulars (Rs.)
A B C

Total expenses as per primary 80,000 70,000 50,000 2,00,000

overhead distribution
summary

Add Service Dept. Costs :

X : Rs.30,000 at 20%, 40% 6,000 12,000 9,000 27,000
& 30% to A,B, and C
Y : Rs.33,000 at 40%, 20% 13,200 6,600 6,600 26,400
& 20% to A, B & C

Total 99,200 88,600 65,600 2,53,400

PARAMJIT SHARMA
 Reciprocal Services Methods
Repeated
Distribution
Method

1 Distribute the cost of a service Dept . to the Production

and service department Using the percentage

2 Apportion the cost of 2nd service department (Aggregate)

to production and other service department as per % given

3 Use the same procedure with other service departments

till the cost of service departments become negligible

PARAMJIT SHARMA
Question
A factory is having 3 prod . Departments A,B & C, and 2 service
Departments Boiler House and Pump Room. The boiler house
was to depend upon the pump Room for supply of water and in turn ,
depends upon the boiler house for supply of steam power for driving
the pump The expenses incurred by the production department
during the period are: A Rs 8,00,000,B Rs 7,00,000
And C Rs 5,00,000.The expenses of Boiler house are Rs 2,34,000
and the Pump House Rs 3,00,000.The expenses of Boiler House
and Pump house are Apportioned to the prod. departments
on the following basis

A B C BH PR
Expenses Of Boiler House 20% 40% 30% - 10%

Expenses Of Pump Room 40% 20% 20% 20% -

PARAMJIT SHARMA
 Secondary Overhead Distribution Summary
Prod Departments (Rs) Service Dept (Rs)
Particulars Total Basis
A B C Boiler Pump
Rs
P Distribution 25,34,000 given 8,00,000 7,00,000 5,00,000 2,34,000 3,00,000
Add Service Dept. Costs

Boiler House 0 20:40:30:10 46,000 93,600 70,200 -2,34,000 23,400

Pump Room 0 40:20:20:20 1,29,360 64,680 6 4,680 64,680 -3,23,400

Boiler House 0 20:40:30:10 12,936 5,872 19,404 -64,680 6,468

Pump Room 0 40:20:20:20 2,587 1,294 1,294 1,293 -6,468

Boiler House 0 20::40:30:20 259 517 388 -1293 129

Pump House 0 40:20:30:20 52 26 26 25 -129

Boiler House 0 20:40:20:20 5 10 8 -25 2

Pump House 0 40:20:20:20 1 1 0 0 -2

PARAMJIT SHARMA
Total 25,34,000 9,92,000 8,86,000 6,56,000 0 0
 Reciprocal Services Methods

Algebraic
Simultaneous
Equation
Method •Total Costs of Service Departments are
Expressed in algebraic equation

•Equations are developed on the basis of

Primary distribution & % of service rendered
to each other

•Total Costs of Service Departments can

Be calculated by solving EQUATIONS

PARAMJIT SHARMA
Algebraic Equation

X= OHE’s + % of Y

Y= OHE’s + % of X

Service Department OHE’S can be apportioned

M N P R S
R 20% 30% 40% - 10%

S 30% 40% 10% 20% -

PARAMJIT SHARMA
 Quick Check Data
Service Departments Operating Departments
ADMIN BACS Accounting Others
Departmental costs
before allocation Rs 1,80,000 Rs 90,000 Rs 1,90,000 Rs 9,00,000
Number of employees 15 5 20 80
Number of PCs 12 20 18 102

The direct method of Apportionment is used.

Allocation bases:
Business school administration costs (ADMIN):
Number of employees
Businessadministration computer services
(BACS): Number of personal computers
PARAMJIT SHARMA
 Quick Check 
How much cost will be apportioned from
Administration to Accounting?
a. INR 36,000
b. INR144,000
c. INR180,000
d. INR 27,000

PARAMJIT SHARMA
 Quick Check 
How much cost will be apportioned from
Administration to Accounting?
a. INR 36,000
b. INR144,000 ADMIN BACS Accounting Others
Departmental costs
c. INR180,000
before allocation INR 180,000 INR 90,000 INR 190,000 INR 900,000
ADMIN allocation 180,000 36,000 144,000
d. INR 27,000

20
INR180,000X = INR 36,000
20 + 80

PARAMJIT SHARMA
 Quick Check 

How much total cost will be apportioned

from ADMIN and BACS combined to the
Accounting Department?
a. INR 52,500
b. INR135,000
c. INR 270,000
d. INR 49,500

PARAMJIT SHARMA
 Quick Check 
Service Departments Operating Departments

ADMIN BACS Accounting Others

Departmental costs
How muchINR
before allocation total costINR
180,000 will90,000
be apportioned
INR 190,000 from
INR 900,000
ADMIN allocation 180,000 - 36,000 144,000
ADMIN and BACS
BACS allocation - combined
90,000 to the Accounting
13,500 76,000
Department?
otal after allocation - - INR 239,000 INR 1,120,500

a. INR 52,500
b. INR 135,000
c. INR 270,000
d. INR 49,500

18
INR 90,000 × 18 + 102 = INR 13,500
PARAMJIT SHARMA
 Quick Check Data
Service Departments Operating Departments
ADMIN BACS Accounting Others
Departmental costs
before allocation INR 180,000 INR 90,000 INR 190,000 INR 900,000
Number of employees 15 5 20 80
Number of PCs 12 20 18 102

The step method of apportionment is used.

Apportionment bases:
Business school administration costs (ADMIN):
Number of employees
Businessadministration computer services
(BACS): Number of personal computers
PARAMJIT SHARMA
 Quick Check 
How much total cost will be apportioned
from ADMIN and BACS combined to the
Accounting Department?
a. INR 35,250
b. INR 49,072
c. INR 18,000
d. INR 26,333

PARAMJIT SHARMA
 Quick Check 
How much total cost will be apportioned from ADMIN
and BACS combined to the Accounting Department?
a. INR 35,250
b. INR 49,072
c. INR 18,000
d. INR 26,333Service Departments Operating Departments

ADMIN BACS Accounting Others

Departmental costs
before allocation INR 180,000 INR 90,000 INR 190,000 INR 900,000
ADMIN allocation (180,000) 8,571 34,286 137,143
BACS allocation - 98,571 14,786 83,786
Total after allocation INR - INR - INR 239,071 INR 1,120,929
PARAMJIT SHARMA
Overhead Appropriation

Few Questions

PARAMJIT SHARMA
 4. SECONDARY DISTRIBUTION SUMMARY

Cost of service Basis of Total Production Department

department apportionment Rs. P1 P2 P3
primary distribution --- 63,000 20,000 18,000 25,000
Canteen No. of employee 1,500 600 500 400
(6:5:4)
Power house (light) No. of light points 1,200 300 400 500
(3:4:5)
Power house (power) House Power 4,000 1,500 1,000 1,500
(3:2:3)
Stores No. of requisitions 3,600 1,200 900 1,500
(4:3:5)
Time keeping & No. of employee 3,000 1,200 1,000 800
accounts (6:5:4)

Repair shop Value of assets 4,500 1,000 1,500 2,000

(2:3:4)
Allocated overhead Total 80,800 25,800 23,300 31,700

PARAMJIT SHARMA
 1. Overhead Analysis Sheet

Items Basis Total Production Department Service Department

(Rs.)
P1 P2 P3 Office Workshop
Indirect wages Actual 25,000 3,000 3,000 4,000 10,000 5,000
Indirect materials Actual 10,950 2,000 3,000 3,000 1,100 1,850
General overhead Direct wages 1,500 400 500 600 - -
(4:5:6)
Amenities to staff No.of employees 12,500 3,000 2,500 3,000 2,500
(6:5:6:3:5) 1,500
Employer’s Direct Wages 1,200 320 400 480 -
contribution to E.S.I. (4:5:6) -
Power H.P. of machine 3,800 600 1,600 1,500 100
X -
Machine hours
worked
(6:16:15:1)
Depreciation 15% of value of 15,750 4,500 5,250 3,750 2,250
machinery -
70,700 13,820 16,250 16,330 12,600 11,700
Apportionment of Machine hours
2,600 5,200 3,900 - (-) 11,700
workshop overhead (2:4:3)
Apportionment of
office overhead Direct wages (-) 12,600
3,360 4,200 5,040 -
(4:5:6)
Allocated overhead Total 19,780 25,650 25,270 - -
PARAMJIT SHARMA
 2. OVERHEAD ANALYSIS SHEET
Items Basis Total Production Deptt .(Rs) Service Deptt( Rs).
(Rs.)
P1 P2 P3 S1 S2
Rent and rates Floor space 5,000 1,000 1,250 1,500 1,000 250
(4:5:6:4:1)
General lighting Light points 600 100 150 200 100 50
(2:3:4:2:1)
Indirect wages Direct wages 1,939 600 400 600 300 39
(600:400:600:300:39)
Power H.P. of Machine 1,500 600 300 500 100 -
(6:5:5:1)
Depreciation Value of machines 10,000 2,400 3,200 4,000 200 200
(12:16:20:1:1)
Direct wages Actual 1,695 - - - 1,500 195
Indirect materials Actual 966 300 200 200 - 266
21,700 5,000 5,500 7,000 3,200 1,000
Apportionment of
Service
Departments
Overhead
S1 Direct wages
1,200 800 1,200 (-) 3,200 -
S2 (3:2:3)
Given
200 300 500 - (-) 1,000
(2:3:5)
Total (A) 21,700 6,400 6,600 8,700 Nil Nil
Working hours (B) 2,560 3,000 1,500

Overhead rate per working hour [(A) ÷(B)] 2.50 2.20 5.80
PARAMJIT SHARMA
 COST OF PRODUCT – X ( Rs)
Direct material 50.00
Direct Labour 30.00
Prime Cost 80.00
Factory Overhead :
P1 : 4 x 2.50 10.00
P2 : 5 x 2.20 11.00
P3 : 3 x 5.80 17.40 38.40
Cost of Product X 118.40

PARAMJIT SHARMA
 3. SECONDARY OVERHEAD DISTRIBUTION SUMMARY
Particulars Total Rs. Base Service Departments (Rs.) Production Departments
P Q R S X Y Z
Factory 5,95,000 Given 45,000 75,000 1,05,000 30,000 1,93,000 64,000 83,000
overhead

Add :
Service
Dept.costs

0 No. of -45,000 5,000 4,000 5,000 10,000 12,500 8,500

P
Employees
(50:40:50:
100:125:85)

DLHs
0 Rs.80,000 in -80,000 24,000 12,000 16,000 12,000 16,000
Q
(6:3:4:3:4)

Area
R 0 (Rs.1,33,000 -1,33,000 19,000 57,000 28,500 28,500
in
(10:30:15:
15)

DLHs
0 (Rs.66,000 -66,000 24,000 18,000 24,000
S in 4:3:4)

Total 5,95,000 3,00,000 1,35,000 1,60,000

OHEs of
prod.depts
PARAMJIT SHARMA
 5. OVERHEAD DISTRIBUTION STATEMENT

Particulars of Basis of Total Rs. Production Deptts. Service Deptts.

Expenses Apportionment
X Y A B
Depreciation Assets value 38,000 20,000 10,000 6,000 2,000
(10:5:3:1)
Rent, Rates & Taxes Floor space 18,000 7,500 6,000 1,500 3,000
(5:4:1:2)
Power H.P. of machine 12,500 6,250 3,125 2,500 625
(10:5:4:1)
Ins.on assets Assets value 9,500 5,000 2,500 1,500 500
(10:5:3:1)
Canteen exp. No. of workers 5,400 2,400 1,200 1,200 600
(100:50:50:25)
Electricity Light points 3,600 1,500 900 600 600
(25:15;10:10)
Direct wages Actual 8,000 --- --- 5,000 3000
Direct material Actual 4,000 --- --- 4,000 ---
99,000 42,650 23,725 22,300 10,325
+11,150 +7,433 -22,300 +3,717
Re-distribution of expenses of Deptt. A among X, 53,800 31,158 Nil 14,042
Y and B in ratio 3:2:1
Re-distribution of expenses of Dept. B between +7,021 +7,021 --- -14,042
X and Y equally
Allocated overhead 60,821 38,179 Nil Nil
PARAMJIT SHARMA
 7. STATEMENT SHOWING OVERHEAD EXPENSES OF PRODUCTION
DEPARTMENTS A AND B

Particulars of Basis of Total Rs. Production Deptts. Service Deptts.

Expenses Apportionment
A B C D
Direct material Actual 5,000 --- --- 3,000 2,000
Direct labour Actual 15,000 --- --- 10,000 5,000
Depreciation Value of Assets 95,000 50,000 25,000 15,000 5,000
(10:5:3:1)
Rent,Rates & Tax Floor space 18,000 7,500 6,000 1,500 3,000
(5:4:1:2)
Insurance Value of Assets 7,600 4,000 2,000 1,200 400
(10:5:3:1)
Power H.P. of machine 10,000 5,000 2,500 2,000 500
(10:5:4:1)
Canteen exp. No. of workers 5,400 2,400 1,200 1,200 600
(100:50:50:25)
Electricity Light points 2,400 1,000 600 400 400
(25:15;10:10)
1,58,400 69,900 37,300 34,300 16,900
Re-distribution of expenses of service department
‘C’ Rs. 12,000 to D and balance of Rs. 22,300 to +13,380 +8,920 (-) 34,300 +12,000
A:B= 3:2
83,280 46,220 Nil 28,900
Re-distribution of expenses of service
Department “D” to A:B = 9:1 26,010 2,890 --- (-)28,900
Allocated overhead total 1,09,290 49,110 Nil Nil
PARAMJIT SHARMA
 k s
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PARAMJIT SHARMA