MASTER MINDS
No.1 for CA/CWA & MEC/CEC
7. OVERHEADS - II
SOLUTIONS TO ASSIGNMENT PROBLEMS
PROBLEM NO.1
Particulars
Production (Units)
Semi Variable Cost (Rs.)
Quarter I
36,000
2,80,000
Quarter II
42,000
3,10,000
Difference
6,000
30,000
Variable Cost per Unit =
Change in Semi Variable Cost
30,000
=
= Rs.5 per units
Change in Pr oduction
6,000 units
Total Fixed Cost = Semi Variables Cost – (Production x Variable Cost per Unit)
Total fixed cost in Quarter I:
= 2,80,000 – (36,000 × 5)
= 2,80,000 – 1,80,000 = 1,00,000
Total fixed cost in Quarter II:
= 3,10,000 – (42,000 × 5)
= 3,10,000 – 2,10,000 = 1,00,000
PROBLEM NO.2
a) Rate capacity : it is a capacity which is indicated by its manufactures = 36.5 tones
 36 .5

x(365 − 65days ) 
b) Practical capacity = 30tonnes 
 365

c) Normal capacity: it is the capacity of plant utilized based on sales expectancy: 25 tones
d) Actual capacity: It is a capacity which is actually achieved = 25.2 tones
PROBLEM NO.3
Absorbed overheads
= Actual Man days x Rate
= 1,50,000 x 50
= Rs. 75,00,000
Under absorption of overheads = Actual overheads – Absorbed overheads
= 79,00,000 – 75,00,000
= Rs. 4,00,000
Reasons for under – absorption:
1. Defective Planning
4,00,000 x 60% = Rs.2,40,000
2. Increase in overhead cost
4,00,000 x 40% = Rs.1,60,000
Treatment in Cost Accounts:
i.
The unabsorbed overheads of Rs. 2,40,000 on account of defective planning to be treated as
abnormal and thus be charged to costing profit & loss account.
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ii. The balance of unabsorbed overheads i.e. Rs. 1,60,000 be charged as below on the basis of
supplementary overhead absorption rate
Supplementary Rate = Rs. 1,60,000 / (30,000 + 5,000 + 50% of 10,000) = Rs. 4 per unit
a. To cost of sales Account = 30,000 x4
b. To finished stock account = 5,000 x 4
c. To WIP account = 50% of 10,000 x 4
Rs. 1,20,000
Rs. 20,000
Rs. 20,000
Rs. 1,60,000
PROBLEM NO.4
Calculation of Under Recovery of Overhead
Particulars
Amount
Manufacturing overheads incurred
8,50,000
Less: Manufacturing Overheads recovered
7,50,000
Under recovery of Overhead
1,00,000
Treatment of Under Recovery of Overhead can be done in 3 Methods:
Method – 1: Carry forward to subsequent years:
Assuming that the industry is a seasonal one (or) a newly started one, it is appropriate to carry forward
the under recovery of overheads. Therefore, Effect on Profits isNil.
Method – 2: Transfer to Profit and Loss Account:
Assuming that, the under recovery has resulted due to abnormal reasons the loss has to be taken to
Costing Profit and Loss Account. Therefore, Effect on Profits is that they will decrease by Rs. 1,00,000.
Method – 3: Use of Supplementary Rate:
Supplementary Rate =
Underre cov ery
1,00,000
=
= Rs. 0.0416.66/Actual base
24,00,000
Under Recovery adjusted towards Finished Goods = Rs, 4,80,000 X 0.04166= Rs. 20,000 (approx.)
Under Recovery adjusted towards Work-In-Progress = Rs. 2,40,000 X 0.04166 = Rs. 10,000 (approx.)
Under Recovery adjusted towards Cost of Goods Sold =Rs.16,80,000 X 0.04166 = Rs. 70,000 (approx.)
Therefore, Effect on Profits is that they will decrease by Rs.40,000 (70,000 – 20,000 – 10,000).
PROBLEM NO.5
i) Total production OH’s incurred
6,00,000
(-) written off obsolete stores
45,000
(-) Wages paid for strike period 30,000
(75,000)
Net production OH’s actually incurred
5,25,000
Oh’s Recovered (48,000 x 10)
4,80,000
Under recovery of OH’s
45,000
ii) Under recovery of OH’s
45,000
IPCC_34e_Costing_Overheads-II_Assignment Solutions _________________32
MASTER MINDS
No.1 for CA/CWA & MEC/CEC
(45,000 x 1/3)
Rs.30,000
Rs.15,000
Due to normal increase
Due to defective
in costs (Positive
Transfer to costing
Supplementary Rates)
&
Increase c/o WIP
Increase C/o
by Rs.5000
Finished goods
sales by
by Rs 2500
Rs 22 500
/
Increase cost of
PROBLEM NO.6
Calculation of Predetermined Machine Hour Rate
Particulars
Power
Basis of
apportionment
75:60 (W.N-1)
Total
A
15,000
Spare parts
9,900
Consumables
5,000
Depreciation
Insurance
Indirect labour
12% on cost – SLM
Basis
1:2 (W.N – 2)
Direct labour hrs
(2:3) (W.N – 3)
Floor space – 3:4
Building maintenance
Total (A)
Machine hrs (B)
Machine Hour Rate
(A/B)
W.N-1: Calculation of Kilo Watt hours Ratio
36,000
3,000
46,000
7,000
B
8,333
3,300
(3,000 X 110%)
2,000
12,000

 10,000
× 12% 

 10%

6,667
6,600
(5,000X110%X120%)
3,000
24,000

 20,000
× 12% 

 10%

1,000
18,400
(40KX115%X2/5)
3,000
48,033
25,000
2,000
27,600
(40,000X115%X3/5)
4,000
73,867
30,000
1.92
2.46
Department
KW Rating (1)
Machine hours (2)
Total (1x2)
A
3
25,000
75,000
B
2
30,000
60,000
W.N-2: Insurance on machinery (to be apportioned on the basis of cost)
10,000
10 %
20,000
Value of Machinery of Department – B =
10%
Value of Machinery of Department – A =
=
Rs. 1,00,000
=
Rs. 2,00,000
WN-3: Calculation of Revised Indirect Wages:
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Particulars
Amount
Indirect Wages estimated
40,000
Add: General increase in indirect wages
6,000
Revised Indirect Wages
46,000
PROBLEM NO.7
Fixed expenses per month
(Rs.)
Rent (one fourth of the total)
75.00
Lighting (one fifth of the total)
16.00
Foreman’s salary (one sixth of the total)
160.00
Sundry expenses–oil, waste etc.
9.00
Insurance (1% on the value of the machine per year)
8.33
Total constant expenses per month
268.33
Total number of hours per annum
4,380
Total number of hours per month
365
Fixed expenses per hour =
0.735
Rs.268 .33
365hrs
Variable expenses per hour:
Depreciation:
Cost of the machine
10,000
Less: Scrap value
900
9,100
Depreciation per annum
Depreciation per hour =
910
0.208
910
4,380hrs
Repairs for the whole life
18,000
Rs.18,000
4,380 X10 years
0.411
Electricity for one hour : 15 units @ 0.05 P
0.750
Machine hour rate
2.104
for one hour
PROBLEM NO.8
No. of machine/hrs
=
200 X 75% =150hours
Calculation of total cost relating to machine:
Depreciation of machine (1,08,000X10%X1/12)
900
Power
1,500
Supervision charges
3,000
Electricity
1,500
R&M
1,500
Insurance of P&M
12,000
IPCC_34e_Costing_Overheads-II_Assignment Solutions _________________34
MASTER MINDS
No.1 for CA/CWA & MEC/CEC
Other general expenses
10,800
Wages(w.n.1)
3,727
Total cost
34,927
Computation of machine hour rate
34,927
150hrs
=
=
Rs.233per machine
Computation of wages payable to worker:
a. Wages for 8 hrs (40+12)
52
b. No. of working hours for the month (assumed that worker worked for 200 hrs)
200 hrs
c. Basic wages
1,300
d. D.A(100% of C)
1,300
e. BASIC + D.A
2,600
f.
Bonus(1/3 on 2,600)
867
g. Leave with pay (10% on 2,600)
260
Total
3,727
PROBLEM NO.9
Computation of machine hour rate of new Machine:
Total (Rs.)
A. Standing Charges:
Per hour (Rs.)
1,000
I.
Insurance Premium 9,000 X
II.
Re nt
1
9
2,880
1
X2,400 X12
10
3,880
0.97*
B. Machine expenses:
I.
Repairs and Maintenance [5,000/4,000]
− 10,000 

10 X4,000

10,00,000
II. Depreciation 

1.25
24.75
III. Electricity 8 units x Rs. 3.75
30.00
Machine hour rate
56.97
Working Note:
1 Calculation of productive Machine hour rate
Total hours
Less: Non-Productive hours
4,200
200
4,000
* 3,880/ 4000 = 0.97
PROBLEM NO.10
Calculation of OHRR for each machine (without use of crane):
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Particulars
a. Over heads
b. Machine hrs
c. OHRR(a/b)
www.mastermindsindia.com
A
B
639
588 (160 + 428)
1.09
C
697
707(130 + 577)
0.99
Over heads per machine to be added for above OHRR when crane is used =
=
951
480 (480 + 0)
0.74
570
(160 + 130 + 480 )
570
= Rs.0.74 per machine
770 h
THE END
IPCC_34e_Costing_Overheads-II_Assignment Solutions _________________36