In a factory, the average annual charges for direct wages amounts to ₹ 4,80,000. The following are some of the expenses (average figure for a year)…

CA Intermediate · Cost and Management Accounting · MTP · September 2026
In a factory, the average annual charges for direct wages amounts to ₹ 4,80,000. The following are some of the expenses (average figure for a year) incurred inside the factory: (a) Works Manager's salary and other emoluments ₹ 50,000. (b) Factory rent and rates ₹ 36,000. The total area of the factory is 45,000 sq. ft. of which the shops occupy 40,000 sq. ft. (c) Wages of caretakers, sweepers, etc., ₹ 7,000. (d) Other factory overhead charges ₹ 53,000. A work order is executed in a shop occupying 3,000 sq. ft. and costs ₹ 10,000 in wages. If the total wages for all the work orders executed in this shop amount to ₹ 160,000, calculate the total amount of factory overhead charges for this work order.

Suggested Answer and Working Notes:

Working Note 1: Primary distribution of Rent amongst Production Department and Service Department: Production Department = (36,000/45000) × 40,000 = 32000 Service Department = (36,000/45000) × 5000 = 4,000 Working Note 2: Total of Overheads: ₹ Works Manager's salary 50,000 Wages of caretakers, sweepers 7,000 Other factory overhead charges 53,000 Add: Share of Rent from Primary Distribution 4000 Total 1,14,000 The total amount of factory overhead charges for this work order: Total Rent for this shop floor = (32,000/40,000) × 3,000 = ₹2,400 Share of rent (In proportion to wages in this shop) = (2,400/1,60,000) × 10,000 = ₹ 150 Share of other overheads (In proportion to total wages) = (1,14,000/4,80,000) × 10,000 = 2,375 Total Overheads for this Work order = ₹ 2,525 (150 +2,375)

Topics: Overheads - Absorption Costing Method

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