Baba Ltd. belongs to an automotive industry, manufacturing hybrid bicycles. The production of bicycles passes through three departments, viz. X1,…

CA Intermediate · Cost and Management Accounting · MTP · January 2025
Baba Ltd. belongs to an automotive industry, manufacturing hybrid bicycles. The production of bicycles passes through three departments, viz. X1, Y2, Z3. The bicycles being equipped with gears needs quality check from time to time. Thus, the company also operates two service departments, namely quality control (QC) and maintenance (M), for its bicycle. Following information is extracted from the accounting books regarding expenses as incurred/ charged: Particulars (₹) Rent and Rates 40,00,000 General Lighting 4,80,000 Indirect Wages 15,51,200 Power 12,00,000 Depreciation on Machines 80,00,000 Sundries 77,56,000 Additional information: Production Departments Service Departments X1 Y2 Z3 QC M Direct wages (₹) 24,00,000 16,00,000 24,00,000 12,00,000 1,56,000 Working hours 6,140 8,950 4,838 - - Value of machines (₹) 4,80,00,000 6,40,00,000 8,00,00,000 40,00,000 40,00,000 H.P. of machines 120 60 100 20 - Light points 20 30 40 20 10 Floor space (sq. ft.) 4,000 5,000 6,000 4,000 1,000 A technical assessment unveiled the following basis for the apportionment of expenses of service departments: X1 Y2 Z3 QC M QC 20% 30% 40% - 10% M 40% 20% 30% 10% - You are required to DETERMINE the following: (i) Overheads distributed to all the departments, viz. X1, Y2, Z3, QC and M. (ii) Overheads total and rate per hour under all the Production Departments after redistribution of Service Department's Overhead. (iii) Total cost of a bicycle, considering the Direct Material and labour Cost of 20,000 and - 12,000 respectively, which is being processed for manufacturing in Departments X1, Y2 and Z3 for 4, 5 and 3 hours respectively.

Suggested Answer and Working Notes:

(i) Statement Showing Distribution of Overheads of Baba Ltd. Particulars Basis Total Production Departments Service Departments X1 Y2 Z3 QC M Direct wages Actual 13,56,000 ₹- ₹- ₹- 12,00,000 1,56,000 Rent & rates Area 40,00,000 8,00,000 10,00,000 12,00,000 8,00,000 2,00,000 General lighting Light points 4,80,000 80,000 1,20,000 1,60,000 80,000 40,000 Indirect wages Direct wages 15,51,200 4,80,000 3,20,000 4,80,000 2,40,000 31,200 Power H.P. 12,00,000 4,80,000 2,40,000 4,00,000 80,000 - Depreciation of machines Value of machines 80,00,000 19,20,000 25,60,000 32,00,000 1,60,000 1,60,000 Sundries Direct wages 77,56,000 24,00,000 16,00,000 24,00,000 12,00,000 1,56,000 2,43,43,200 61,60,000 58,40,000 78,40,000 37,60,000 7,43,200 (ii) Redistribution of Service Department's Expenses over Production Departments X1 (₹) Y2 (₹) Z3 (₹) QC (₹) M (₹) Total overhead distributed as above 61,60,000 58,40,000 78,40,000 37,60,000 7,43,200 Dept. QC Overheads apportioned (20:30:40:-:10) 7,52,000 11,28,000 15,04,000 -37,60,000 3,76,000 Dept. M overheads apportioned (40:20:30:10:-) 4,47,680 2,23,840 3,35,760 1,11,920 -11,19,200 Dept. QC Overheads apportioned (20:30:40:-:10) 22,384 33,576 44,768 -1,11,920 11,192 Dept. M overheads apportioned (40:20:30:10:-) 4,477 2,238 3,358 1,119 -11,192 Dept. QC Overheads apportioned (20:30:40:-:10) 224 336 448 -1,119 112 Dept. M overheads apportioned (40:20:30:10:-) 45 22 34 11 -112 Dept. QC Overheads apportioned (20:30:40:-:10) 2 3 5 -11 - Total 73,86,812 72,28,015 97,28,373 Working hours 6,140 8,950 4,838 Rate per hour 1,203 808 2,011 (iii) Determination of total cost of a bicycle: Particulars (₹) Direct material cost 20,000 Direct labour cost 12,000 Overhead cost (See working note) 14,885 46,885 Working Note: Overhead cost = (₹ 1,203 × 4 hrs.) + (₹ 808 × 5 hrs.) + (₹ 2,011 × 3 hrs.) = 4,812 +4,040 +6,033 = 14,885

Topics: Overheads - Absorption Costing Method

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