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CWA/CS Inter Costing Unit Test – 2
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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
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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