SA Ltd. has three production (M1, M2 and A1) and three service departments (Stores, Engineering services and General service). Engineering…

CA Intermediate · Cost and Management Accounting · RTP · September 2025
SA Ltd. has three production (M1, M2 and A1) and three service departments (Stores, Engineering services and General service). Engineering department serves the M1 and M2 only. The relevant information related with Product X and Y 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 is Indirect Wages (₹) Consumable Supplies (₹) M1 9,30,400 2,52,000 M2 8,26,800 3,64,000 A1 3,24,400 84,000 Stores 1,64,000 56,000 Engineering Service 1,06,800 84,000 General Service 1,50,400 64,000 (₹) Depreciation on Machinery 7,92,000 Insurance of Machinery 1,44,000 Insurance of Building 64,800 (Total building insurance cost for M1 is one third of annual premium) Power 1,29,600 Light 1,08,000 Rent 2,53,500 (The general service deptt. is located in a building owned by the company. It is valued at 1,20,000 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 Machinery (₹) Area (Sq. ft.) Effective H.P. hours % Production Direct Labour hour Capacity Machine hour M1 24,00,000 5,000 50 2,00,000 40,000 M2 18,00,000 6,000 35 1,50,000 50,000 A1 6,00,000 8,000 05 3,00,000 – Stores 2,40,000 2,000 – – – Engg. Service 7,20,000 2,500 10 – – General Service 2,40,000 1,500 – – – Required: (i) PREPARE an overhead analysis sheet, showing the bases of apportionment of overhead to departments. (ii) PREPARE a statement allocating 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.

Suggested Answer and Working Notes:

(i) Summary of Apportionment of Overheads Items Basis of Apportionment Total Amount Production Deptt. M1 Production Deptt. M2 Production Deptt. A1 Service Deptt. Store Service Service Deptt. Engineering Service Service Deptt. General Service Indirect wages Allocation given 25,02,800 9,30,400 8,26,800 3,24,400 1,64,000 1,06,800 1,50,400 Consumable supplies Allocation given 9,04,000 2,52,000 3,64,000 84,000 56,000 84,000 64,000 Depreciation on machinery Capital value of machine (20:15:5:2:6:2) 7,92,000 3,16,800 2,37,600 79,200 31,680 95,040 31,680 Insurance of Machinery Capital value of machine (20:15:5:2:6:2) 1,44,000 57,600 43,200 14,400 5,760 17,280 5,760 Insurance on Building 1/3rd to M1 basis (-:12:16:4:5:3) 64,800 21,600 12,960 17,280 4,320 5,400 3,240 Power HP Hr% (10:7:1:-:2:-) 1,29,600 64,800 45,360 6,480 - 12,960 - Light Area (10:12:16:4:5:3) 1,08,000 21,600 25,920 34,560 8,640 10,800 6,480 Rent* Area (10:12:16:4:5:-) 2,53,500 53,940 64,720 86,300 21,580 26,960 - Total 48,98,700 17,18,740 16,20,560 6,46,620 2,91,980 3,59,240 2,61,560 *Rent to be apportioned among the departments which actually use the rented building. The notional rent is imputed cost and is not included in the calculation. (ii) Allocation of service departments overheads Service Deptt. Basis of Apportionment Production Deptt. M1 Production Deptt. M2 Production Deptt. A1 Service Deptt. Store Service Service Deptt. Engineering Service Service Deptt. General Service Store Service Ratio of consumable value (126:182:42) 1,05,120 1,51,820 35,040 (2,91,980) - - Engineering service In Machine hours Ratio of M1 and M2 (4:5) 1,59,660 1,99,580 - - (3,59,240) - General service Labour hour Basis (20:15:30) 80,480 60,360 1,20,720 - - (2,61,560) Production Department allocated in (i) 17,18,740 16,20,560 6,46,620 Total 20,64,000 20,32,320 8,02,380 (iii) Overhead Absorption rate M1 M2 A1 Total overhead allocated 20,64,000 20,32,320 8,02,380 Machine hours 40,000 50,000 - Labour hours - - 3,00,000 Rate per machine hour 51.60 40.65 - Rate per Direct labour - - 2.67 (iv) Statement showing overhead absorption for Product X and Y Machine Deptt. Absorption Rate Product X Product Y Hours (₹) Hours (₹) M1 51.60 10 516.00 6 309.60 M2 40.65 4 162.60 14 569.10 A1 2.67 14 37.38 18 48.06 715.98 926.76

Topics: Overheads - Absorption Costing Method

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic