A factory has three production departments, P1, P2, P3 and two service departments S1, and S2 Both the service departments are independent and…

CA Intermediate · Cost and Management Accounting · PYQS · September 2025
A factory has three production departments, P1, P2, P3 and two service departments S1, and S2 Both the service departments are independent and provide services to each other. Following is the detail of expenses of each service department: Department Amount (₹) S1 1,60,000 S2 2,40,000 Further the expenses of department S1 and S2 are apportioned on the following basis: P1 P2 P3 S1 S2 S1 25% 35% 20% - 20% S2 35% 30% 25% 10% - You are required to apportion the expenses of departments S1 and S2 to production departments P1, P2 and P3 using Simultaneous Equation Method.

Suggested Answer and Working Notes:

The total expenses of the two service departments will be determined as follows: S1 = 1,60,000 + 0.10 S2 S2 = 2,40,000 + 0.20 S1 Substituting the value of S1, S2 = 2,40,000 + 0.20 (1,60,000 + 0.1 S2) = 2,40,000 + 32,000 + 0.02 S2 = 2,72,000 + 0.02 S2 S2 - 0.02 S2 = 2,72,000 S2 = (2,72,000) / 0.98 = 2,77,551 The total of expenses of the S2 is 2,77,551 and that of the S1 is 1,87,755 i.e.,1,60,000 + 0.1 x 2,77,551. The expenses will be allocated to the production departments as under: Production Department Dept.-P1 Dept.-P2 Dept.-P3 S1 (25%, 35% and 20% of 1,87,755) 46,939 65,714 37,551 S2(35%, 30% and 25% of 2,77,551) 97,143 83,265 69,388 Total 1,44,082 1,48,979 1,06,939 The total of expenses apportioned to P1, P2 and P3 is 4,00,000.

Topics: Overheads - Absorption Costing Method

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