KALINGA COLLEGE OF COMMERCE,

BHUBANESWAR

SESSION:-2019-20
COST ACCOUNTING
A PROJECT REPORT ON
DISTRIBUTION OF OVERHEAD
SUBMITTED BY :-
NAME:- NAYAN CHAND SOREN
CLASS:-+22nd YEAR COMMERCE
COLLEGE ROLL NO.:-IC8-016
REDG. NO.:-MZ07C18028

GUIDED BY:-
MR. ASHISH KUMAR LENKA
(LECTURER IN COMMERCE)
NAME OF THE EXAMINATION:-+2 CHSE BOARD EXAMINATION 2020
SIGNATURE OF STUDENT WITH DATE:

SIGNATURE OF INTERNAL SIGNATURE OF EXTERNAL

 ABSTRACT
The study aims to examine the effects of overhead cost in the organization .
Specifically the study looks at the treatment of overhead cost apportionment from the
prospective of the profit making of the organization . In this study we provide information
about distribution of overhead in organization . here discussed on bases of apportionment
and its questionnaires solution ,how it uses in a organization .

2|Page
 ACKNOWLEDGEMENT

I would like to express my gratitude and appreciation to all those who gave me the
golden opportunity to complete the project. A special thanks to my teacher Mr. Ashish
Kumar Lenka whose help , stimulating suggestion and encouragement helped me to co-
ordinate my project especially in writing the project report.

I owe my deep gratitude to our project guider to my teacher , who took keen interest
in our project work and guided us all along till the completion of our project work.

I would like to acknowledge with much appreciation to crucial role of all staff member
who gave the permission to use all required accessories to complete my project work.

I will not forgot to remember friends and family members for their encouragement
and more over for their support and guidance

NAME:- NAYAN CHAND SOREN

(Name Of The Student)

3|Page
 DECLARATION

I do hear by declare that all the information provided in the project are my own and the
project is a result of my hard work and dedication . This work has not been submitted
before and all the information provided in the project is true and best of my knowledge
and belief .

NAME:- NAYAN CHAND SOREN

CLASS:-+22nd YEAR COMMERCE
COLLEGE ROLL NO.:-IC8-016

4|Page
 CERTIFICATE

5|Page
 CONTENT
S.L. NO. PARICULARS PAGE NO.
1. Introduction 07

2. Steps in Distribution of Overhead 08

3. Bases for apportionment 09

4. Comprehensive Problem 10

5. Allocation of Overheads 11

6. Schedule of a apportioned Expenses 12

7. Distribution of Department Expenses 13

8. Conclusion 14

9. Bibliography 15

6|Page
 INTRODUCTION
When any expenditure which cannot be directly charged to any job , operation or
process , such expenditure is called overhead . Thus indirect expenditure of any kind is
indicated by overhead. Indirect materials, indirect wages & indirect expenses are included
in overhead.

Therefore, those expenses which although cannot be allocated to any product or

service (as direct cost) but can be apportioned to, or absorbed by, the products or services
are called overhead.

Overhead is defined by different authors in different languages, but the same sense
is carried by each definition.

Overhead is constituted by the aggregate of indirect materials, indirect wages &

indirect expenses. Where, indirect materials are those material cost although which cannot
be allocated to any process or job but can be apportioned to or absorbed by processes or
jobs. Wages other than direct wages are referred to as indirect wages. Also expenses other
than direct expenses are referred to as indirect expenses.

In many case what is a direct cost & what is an item of overhead are matters
of judgment. For example, during a given period, from the electric meter of a department,
the cost of electricity consumed by the department is known; but detailed technical
arrangements are required if it is needed to know each cost centre or cost unit wise, cost
of consumption of electricity. In the circumstances stated above, arrangement may be made
by the management of one factory at some cost, while because of the amount of cost
involved; another factory’s management may consider it undesirable. Thus, in the former
factory, cost of electricity can be treated as direct cost; the same shall be treated by the
later factory as indirect cost, i.e. overhead. Thus, generally it can be said that depending
upon the decision, on the basis of economic & other considerations, some items of cost
may be treated in one organization as direct cost & in another organization as indirect
cost.

Thus, in many cases, distinction between direct cost & indirect cost is not possible.
The expense is treated as overhead, where in relation to a cost centre or cost unit, the
process of making direct measurement of an expense is considered wasteful or where no
acceptable method of such measurement is there.

7|Page
 STEPS IN DISTRIBUTION OF
OVERHEAD
To ascertain the total cost , overheads are added to the prime cost . The overheads
which cannot be specifically related to cost unit , are to be apportioned to various
departments and then to cost centres or production unit . Following steps are involved in
this procedure .

1.Collection of overheads

2.Classification of overheads

3.Allocation and apportionment of overhead

4.Re-apportionment of Service Department cost to Production Department

5.Absorption of overheads by production unit.

8|Page
 BASES OF APPORTIONMENT
The basis used for the apportionment of costs between a number of cost centres when the costs
are to be shared between them equitably. This occurs when an overhead cannot be directly assigned
to one particular cost centre. For example, rent and business rates are seldom incurred by individual
cost centres, therefore floor area is often used as a basis of apportionment to share the costs
between appropriate cost centres.

Types of Overhead Basis for Apportionment

1.Rent , Rates and taxes , depreciation OF building ,

Floor Area
heating , Repair

2. Lighting Number of light points, area occupied.

3. Heat Cubic Content
4. Power House power of machines or machine hours.
5. Electric power, electric light Kilowatt-hours.
6. Depreciation, insurance, repairs, and maintenance of
Book value of asset or original cost.
plant and vehicles
7. Group insurance, Canteen expenses, E.S.I. contribution,
Number of employees or Wages paid.
Supervision, Personnel, Staff welfare, Wages, Cost office
No. of stores requisitions or value of
8. Stores
material issued or value of material stored.
9. Delivery expenses Weight, Volume, tone-miles
10. Carriage inwards Value of material used.
11. Audit feeds Sales, total cost.
12. Selling and distribution expenses Sales value
Maintenance hours, maintenance wages or
13. Maintenance
plant value
No. of production employees or No.of jobs
14. Inspection
or No.of inspection tickets.
15. Advertising Sales value
Direct labour hours or wages paid or
16. Remuneration of Works Director
number of employees.
17. Sundries Direct Wages

9|Page
 COMPAREHENSIVEVE PROBLEM
The Ruchi Company has the following account balances and distribution of direct charges
as on 31st March 2017 .

Allocated Total Production Department Service Department

Plant Store
Overheads M/c. Shop Packing General and
Maintainance
Indirect Labour 14,650 4,000 3,000 2,000 5,650
Maintenance material 5,020 1,800 700 1,020 1,500
Miscellaneous Supplies 1,750 400 1,000 150 200
Superintendent’s Salary 4,000 - - 4,000 -
Cost and Payroll Salary 10,000 - - 10,000 -
Overheads to be appointed:
Power 8,000
Rent 12,000
Fuel and Heat 6,000
Insurance 1,000
Taxes 2,000
Depreciation 1,00,000
Total 1,64,420 6,200 4,700 17,170 7,350
The following data were complied by means of the factory survey made in the previous
year .

Particulars Floor Radiator No. Of Investment H.P. Hour

Area sections Employees

Machine Shop 2,000 sq.ft 45 20 6,40,000 3,500

Packing 800 sq.ft 90 10 2,00,000 500
General Plant 400 sq.ft 30 3 10,000 -
Store and Maintenance 1,600 sq.ft 60 5 1,50,000 1,000
Total 4,800 sq.ft 225 38 10,00,000 5,000
Expenses charged to the stores and maintenance department are to be distributed to the
other departments by the following percentage :
Machine shop 50% , packing 20% , general plant 30% . General plant overheads are
distributed on the basis of the employees .
a) Prepare an overhead distribution sheet with supporting schedules to show
computations and basis of distribution including distribution of the service department
expenses to producing department .
b) Determine the service department distribution by the method of continued distribution
. Carry through 3 cycles . Show all calculations to the nearest Rupee .

10 | P a g e
 ALLOCATION OF OVERHEADS
Solution :

Particulars Production Department Service Departments

Machine Packing General Plant Store and
Maintenance
Allocated Expenses:
Indirect Labour 4,000 3,000 2,000 5,650
Maintenance material 1,800 700 1,020 1,500
Superintendent’s Salary - - 4,000 -
Miscellaneous Supplies 400 1,000 150 200
Cost and Payroll Salary - - 10,000 -
Total
6,200 4,700 17,170 7,350
Appointed Expenses
77,720 25,800 2,830 22,650
Total 83,920 30,500 20,000 30,000

11 | P a g e
 SCHEDULE OF APPORTIONED
EXPENSES

Item Basis Machine Packing General Store and

Shop Plant Maintenance
Power H.p. Power 5,600 800 - 1,600
Rent Floor Space 5,000 2,000 1,000 4,000
Fuel and Heat Radiation 1,200 2,400 800 1,600
Insurance Secs. 640 200 10 150
Taxes Investment 1,280 400 20 300
Depreciation Investment 64,000 20,000 1,000 15,000
Investment
Total 77,720 25,800 2,830 22,650

12 | P a g e
 DISTRIBUTION OF SERVICE
DEPARTMENT EXPENSES

Particulars Production Department Service Department

Machine Packing General store and
Plant Maintenance

Total Expenses [as per (a)] 83,920 30,500 20,000 30,000

Transfer from stores and Maintenance 15,000 6,000 9,000 (30,000)
Transfer from General plant 16,571 8,286 (29,000) 4,143
Transfer from Stores and Maintenance 2,072 829 1,242 (4,143)
Transfer from General plant 710 355 (1,242) 177
Transfer from Stores and Maintenance 88 36 53 (177)
Transfer from General plant 35 12 (53) -
Total 1,18,396 46,024

13 | P a g e
 CONCLUSION

It’s almost impossible to run a business without some overheads . But these
operating cost can be minimized or eliminated in many cases , leaving us with more profits
in our pockets . A Business with streamlined operating expenses will have the best possible
chance for success . Allocation and apportionment of overheads helps for finding total cost
of production for better decision making for cost control and cost reduction .

14 | P a g e
 BIBLIOGRAPHY
 https//SlideShare.com
 https//Wikipedia.com/distribution-of-cost
 https//www.accountingnotes.net
 S.P. Jain , K.L Narang , Simmi Agrawal and Monika Sehgal : 2016 : Elements of Cost
Accounting : IV/1.3-1.41 :

15 | P a g e
 THANK YOU

16 | P a g e
17 | P a g e