Bharadwaj Institute Private Limited www.bharadwajinstitute.com CWA/CS Inter Costing Unit Test – 2 +91 98415-37255 Overheads & Machine hour Rate Answer all questions. Use ruled sheets & Single color pen. 1. State the following whether: True or false 1.1 1.2 1.3 1.4 1.5 1.6 1.7 Overheads are also known as chargeable expenses. A term synonymous with factory overhead is ‘other expenses’ Departments that assist producing departments indirectly are called service departments. Factory overhead cost applied to a job is usually based on a pre-determined rate. Variable overhead vary with time. Factory overhead includes all production costs other than direct materials and salaries. Pre-determined overhead rates can be used for both job order and process cost accumulation procedures. 1.8 When actual overheads are more than absorbed overhead, it is known as over-absorption. 1.9 Carriage inwards is not really an overhead, but is a direct cost. 1.10 Cash discounts are generally excluded completely from the cost. 1.11 overhead is an aggregate of …………and……….and…………. 1.12 salary of a foreman in a production department is …………. With respect to the department, but is …………. With respect to the product. 1.13 ………………method of absorption of factory overheads should be used only when all the cost units passing through the cost centre are identical. 1.14 Overhead costs are also known as…………. 1.15 The per unit cost of the …………portion of the factory overhead varies with the volume of production while the……………. portion remains the same with volume. 1.16 The difference between actual and absorbed factory overheads is called………….. 1.17 Factory overhead costs are made available prior to their being incurred by means of …………… 1.18 Machine hour rate method of absorption is appropriate when production is carried out on………. 1.19 The term used for charging of overheads to cost units is known as ……………… 1.20 Under- or over-absorption of overheads arises only when overheads are absorbed by…….. Question No 2 The budgeted working conditions for a cost centre are as follows: Normal working per week Number of machines Normal weekly loss of hours on maintenance Number of weeks works per year Estimated annual overheads Actual result in respect of a 4 week period are: Overhead incurred Machine hours produced . . . . . . . . . . 42 hours 14 5 hours per machine 48 Rs.1,24,320 . . Rs.10,200 . . 2,000 On the basis of the above information you are required to calculate: (i) The machine hour rate. (ii) The amount of under– or over–absorption of overhead. No.58/19, First Floor, North Mada Street, Nungambakkam, Chennai - 600034 Bharadwaj Institute Private Limited www.bharadwajinstitute.com CWA/CS Inter Costing Unit Test – 2 +91 98415-37255 Overheads & Machine hour Rate Question No. 3: ABC Ltd. manufactures a single product and absorbs the production overheads at a predetermined rate of Rs.10 per machine hour. At the end of financial year 1998-99, It has been found that actual production overheads incurred were Rs.6,00,000. It included Rs.45,000 on account of ‘written off’ obsolete stores and Rs.30,000 being the wages paid for the strike period under an award. The production and sales data for the year 1998-99 is as under: Production: Finished goods 20,000 units Work-in-progress 8,000 units (50% complete in all aspects) Sales: Finished goods 18,000 units The actual machine hours worked during the period were 48,000. It has been found that onethird of the under-absorption of production overheads was due to lack of production planning and the rest was attributable to normal increase in costs. You are required to: (i) Calculate the amount of under-absorption of production overheads during the year 1998-99; and (ii) Show the accounting treatment of under-absorption of production overheads. Question No. 4: A company has three production departments (M1, M2, and A1, ) and three service department, one of which Engineering service department, servicing the M1, and M2, only. The relevant informations are 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 cost for the year are M1, M2, A1, Stores Engineering service General service Indirect Wages (Rs.) 46,520 41,340 16,220 8,200 5,340 7,520 Consumable Supplies (Rs.) No.58/19, First Floor, North Mada Street, Nungambakkam, Chennai - 600034 12,600 18,200 4,200 2,800 4,200 3,200 Bharadwaj Institute Private Limited www.bharadwajinstitute.com Depreciation on Machinery Insurance of Machinery Insurance of Building Power Light Rent CWA/CS Inter Costing Unit Test – 2 +91 98415-37255 Overheads & Machine hour Rate Rs. 39600 7200 3240 (total building insurance cost for M1 is one third of annual premium) 6480 5400 12675 (the general service dept. is located in a building owned by the company. It is valued at Rs.6000 and is charged into cost at notional value of 8% per annum. This cost is additional to the rent shown above) 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 (Sq. ft.) Effective Production Direct Capacity Machinery H.P hours Labour hour Machine (Rs.) % hour M1, 1,20,000 5,000 50 2,00,000 40,000 M2, 90,000 6000 35 1,50,000 50,000 A1, 30,000 8,000 05 3,00,000 Stores 12,000 2,000 Engg. Service 36,000 2,500 10 General 12,000 1,500 Service Required: (i) Prepare a overhead analysis sheet, showing the bases of apportionment of overhead to departments. (ii) Allocate service department overheads to production department ignoring the apportionment of service department costs among service departments. (iii) Calculate suitable overhead absorption rate for the production departments. (iv) Calculate the overheads to be absorbed by two products, X and Y. No.58/19, First Floor, North Mada Street, Nungambakkam, Chennai - 600034