The Union Ltd. has the following account balances and distribution of direct charges on 31st March, 2025. Total Production Depts. Service Depts.…

CA Intermediate · Cost and Management Accounting · MTP · May 2026
The Union Ltd. has the following account balances and distribution of direct charges on 31st March, 2025. Total Production Depts. Service Depts. Allocated Overheads: (₹) Machine Shop (₹) Packing (₹) General Plant (₹) Stores (₹) Indirect labour 29,000 8,000 6,000 4,000 11,000 Maintenance Material 9,900 3,400 1,600 2,100 2,800 Misc. supplies 5,900 1,500 2,900 900 600 Supervisor's salary 16,000 16,000 Cost & payroll salary 80,000 80,000 Overheads to be apportioned: Power 78,000 Rent 72,000 Fuel and Heat 60,000 Insurance 12,000 Taxes 8,400 Depreciation 1,20,000 The following data were compiled by means of the factory survey made in the previous year: Floor Space Radiator Section No. of employees Investment H.P. hours Machine Shop 2,000 Sq. ft. 45 20 8,00,000 3,500 Packing 800 Sq. ft. 90 12 2,40,000 500 General Plant 400 Sq. ft. 30 4 80,000 - Stores & maintenance 1,600 Sq. ft. 60 8 1,60,000 1,000 Expenses charged to the stores departments are to be distributed to the other departments by the following percentages: Machine shop 50%; Packing 20%; General Plant 30%; General Plant overheads is distributed on the basis of number of employees. (a) PREPARE an overhead distribution statement with supporting schedules to show computations and basis of distribution. (b) DETERMINE the service department distribution by simultaneous equation method.

Suggested Answer and Working Notes:

(a) Overhead Distribution Statement Production Departments Service Departments Allocated Overheads: Machine Shops (₹) Packing (₹) General Plant (₹) Stores (₹) Indirect labour 8,000 6,000 4,000 11,000 Maintenance Material 3,400 1,600 2,100 2,800 Misc. supplies 1,500 2,900 900 600 Supervisor's salary -- -- 16,000 -- Cost & payroll salary -- -- 80,000 -- Total allocated overheads 12,900 10,500 1,03,000 14,400 Add: Apportioned Overheads (As per Schedule below) 1,84,350 70,125 22,775 73,150 1,97,250 80,625 1,25,775 87,550 Schedule of Apportionment of Overheads Item of Cost Basis Production Departments Service Departments Machine Shops (₹) Packing (₹) General Plant (₹) Stores (₹) Power HP hours (7 : 1 : - : 2) 54,600 7,800 -- 15,600 Rent Floor space (5 : 2 : 1 : 4) 30,000 12,000 6,000 24,000 Fuel & Heat Radiator sec. (3 : 6 : 2 : 4) 12,000 24,000 8,000 16,000 Insurance Investment (10 : 3 : 1 : 2) 7,500 2,250 750 1,500 Taxes Investment (10 : 3 : 1 : 2) 5,250 1,575 525 1,050 Depreciation Investment (10 : 3 : 1 : 2) 75,000 22,500 7,500 15,000 1,84,350 70,125 22,775 73,150 (b) Re-distribution of Overheads of Service Departments to Production Departments: Let, the total overheads of General Plant = 'a' and the total overheads of Stores = 'b' a = 1,25,775 + 0.3b...........(i) b = 87,550 + 0.2a ...........(ii) Putting the value of 'b' in equation no. (i) a = 1,25,775 + 0.3 (87,550 + 0.2a) Or a = 1,25,775 + 26,265 + 0.06a Or 0.94a = 1,52,040 Or a = 1,61,745 (appx.) Putting the value of a = 1,61,745 in equation no. (ii) to get the value of 'b' b = 87,550 + 0.2 × 1,61,745 = 1,19,899 Secondary Distribution Summary Particulars Total (₹) Machine Shops (₹) Packing (₹) Allocated and Apportioned overheads as per Primary distribution 2,77,875 1,97,250.00 80,625.00 General Plant 1,61,745 80,872.50 (1,61,745 × 5/10) 48,523.50 (1,61,745 × 3/10) Stores 1,19,899 59,949.50 (1,19,899 × 50%) 23,979.80 (1,19,899 × 20%) 3,38,072.00 1,53,128.30

Topics: Overheads - Absorption Costing Method

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