The following figures are extracted from the accounts of a

manufacturing concern for the month of Sep'05:

Indirect Materials Rs. Items Prdn. CC Service CC Primary Distribution Summary
Production Dept. P1 950 P1 P2 P3 S1 S2
Items Basis of Total Prdn. CC Service CC
Production Dept. P2 1200 Area (sq. m.) 4000 4000 3000 2000 1000
Production Dept. P3 200 Assets Value 100000 120000 80000 60000 40000 Apportionment P1 P2 P3 S1 S2
Maint. Dept. S1 1500 Kilowatt Hours 4000 4400 1600 1500 500
Indirect Material Allocation 4250 950 1200 200 1500 400
Stores Dept. S2 400 No. of Employees 90 120 30 40 20
Indirect Wages Rs. Indirect Labour Allocation 3950 900 1100 300 1000 650
Production Dept. P1 900
Power & Light Kilowatt Hours 6000 2000 2200 800 750 250
Production Dept. P2 1100
Production Dept. P3 300 Depreciation Value of assets 2000 500 600 400 300 200
Maint. Dept. S1 1000
Insurance Value of assets 1000 250 300 200 150 100
Stores Dept. S2 650
Power and Light 6000 Rent & Rates Sq. m. 2800 800 800 600 400 200
Insurance on Assets 1000
Rent & Rates 2800 Meal Charges No. of Employees 3000 900 1200 300 400 200
Meal Charges 3000
Depreciation 6% on capital value of assets, p.a.. From the
Total 23000 6300 7400 2800 4500 2000
above prepare a primary distribution summary with the
following primary departmental data: 1 2
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10

SECONDARY DISTRIBUTION OF OVERHEAD Apportionment of the OH of Service Cost Centre to Production Cost Centre

Transfer of the OH of Service Cost Centre to Production Cost Centre Service Cost Centre Cost Basis of Apportionment

1 Maintenance Department Hours worked for each dept.

2 Payroll Dept./ Time Keeping Dept. Total labour/machine hours, No. of
Direct Non Reciprocal Reciprocal employees in each dept.
Method Method Method 3 Personnel Dept. Rate of Labour Turnover, No. of employees
in each dept.
4 Store Keeping Dept. No. of Requisitions, qty. or value of
materials of each dept.
Direct Method based on 1.Repeated 5 Purchase Dept. No. of Purchase orders, value of matrial
Apportionment step wise Distribution – purchased for each dept.
apportionment of based on agreed 6 Building Service Dept. Relative area of each dept.
OH percentage
Maximum Service to
2. Simultaneous
Minimum Service till
final apportionment Equation Method 3 4
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10 Dr. Ratnesh Chaturvedi, COMA, Session – 9-10

1
 Direct Method - Non-reciprocal Method -
Additional Information: Additional Information: Service CC S2 – Maximum Service
P1 P2 P3 S1 S2 P1 P2 P3 S1 S2
Total OH (Rs.) 6300 7400 2800 4500 2000 Total OH (Rs.) 6300 7400 2800 4500 2000
Direct Labour Hours 3600 3200 2200 Direct Labour Hours 3600 3200 2200
No. of Requisitions 900 600 500 No. of Requisitions 900 600 500
SECONDARY DISTRIBUTION SUMMARY - Direct Method SECONDARY DISTRIBUTION SUMMARY - Step Method
Particulars Basis of Apportionment Total Production Cost Centre Service Cost Centres Basis of Apportionment Total Production Cost Centre Service Cost Centres
P1 P2 P3 S1 S2 P1 P2 P3 S1 S2
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Total as per Primary 23000 6300 7400 2800 4500 2000 23000 6300 7400 2800 4500 2000
Distribution

S1 Labour Hrs. 1800 1600 1100 -4500 No. of Requisitions 720 480 400 400 -2000
S2 No. of Requisitions 900 600 500 -2000 Labour Hours 1960 1742 1198 -4900

Total OH 23000 9000 9600 4400 23000 8980 9622 4398

5 6
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10 Dr. Ratnesh Chaturvedi, COMA, Session – 9-10

Simultaneous Method –
Reciprocal Method – Repeated Distribution Method
Let X = Total OH of Dept. S1
Additional Information: Apportionment % Let Y = Total OH of dept. S2
P1 P2 P3 S1 S2 X = 4500 + 20 % of Y - - - - - - - - - - (1)
S1 40 30 20 - 10 Y = 2000 + 10% of X - - - - - - - - - - - (2)
S2 30 30 20 20 - 10X = 45000 + 2Y - - - - - - - - - - - - - (3)
10Y = 20000 + X - - - - - - - - - - - - - - (4)
Total OH 6300 7400 2800 4500 2000
Multiplying equation (3) by 5 and rearranging –
SECONDARY DISTRIBUTION SUMMARY - Step Method
Particulars Production Cost Centre Service Cost Centres 50X – 10Y = 225000
P1 P2 P3 S1 S2 -X + 10Y = 20000
Rs. Rs. Rs. Rs. Rs.
49X = 245000 Thus X = 5000 & Y = 2500
Total as per Primary 6300 7400 2800 4500 2000 Items Total Production Dept.
Distribution
P1 P2 P3
S1 1800 1350 900 -4500 450
Rs. Rs. Rs. Rs.
S2 735 735 490 490 -2450
S1 196 147 98 -490 49
Total OH 16500 6300 7400 2800
S2 15 14 10 10 -49 S1 (90% of 5000) 4500 2000 1500 1000
S1 4 4 2 -10 S2 (80% of 2500) 2000 750 750 500
Total OH 9050 9650 4300 7 Dr. Ratnesh Chaturvedi, COMA, Session – 9-10 8
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10
Total OH 23000 9050 9650 4300

2
 PROCEDURE OF LINKING OF OVERHEAD Methods of Absorption : Absorption Rates

Classification 1. Direct Material Cost Percentage Rate = Prdn. OH x 100 / Dir. Matrl. Cost
and Collection
of Overhead 2. Direct Wages Percentage Rate = Prdn. OH x 100 / Dir. Wages Cost
Absorption :
After secondary distribution overhead
Allocation & for each dept. is found out so that 3. Prime Cost Percentage Rate = Prdn. OH x 100 / Prime Cost
Apportionment each job or product gets due share of
OH when it passes through that dept.
of Overhead
Thus, OH absorption involves 4. Labour Hour Rate = Prdn. OH / Labour Hours Required for Production
apportionment of OH relating to a
Absorption of dept. among the units produced in
that dept. during the relevant period.
Overhead 5. Cost Unit Rate = Prdn. OH / No. of Cost units produced

6. Machine Hour Rate = Prdn. OH / No. of Machine Hours

9 10
Dr. Ratnesh Chaturvedi, COMA, Session – 9-10 Dr. Ratnesh Chaturvedi, COMA, Session – 9-10