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http://www.scribd.com/doc/47881273/Star-Engineering http://www.scribd.

com/doc/44514951/Star-Engg STAR ENGINEERING COMPANY FOUR PRODUCTION AND THREE SERVICE DEPTS NO FORMAL ACCOUNTING SYSTEM FOLLOWED PRICES FIXED ON WHAT MARKETS COULD BEAR INVENTORY VALUED AT 90% OF MARKET PRICEWITH 10% PROFIT MARGIN RECEIVED ORDER FOR SAMPLE TRANSFORMER NO COMPARABLE MARKET PRICE AVAILABLE DETAILED COST SHEET REQUIRED BYGOVERNMENT DIRECTLY ASSIGNED AS MANY EXPENSES TOPRODUCTION DEPARTMENTS SOME COMMON COSTS ALLOCATED TO VARIOUSDEPARTMENTS ON SOME RATIONAL BASIS COMPLETION OF OVER HEAD COST DISTRIBUTIONSHEET CALCULATION OF OVER HEAD COST FOR FOUR PRODUCTION DEPARTMENTS DO YOU AGREE WITH:- PROCEDURES ADOPTED BY THE COMPANY?CHOICE OF BASE FOR OVERHEAD ABSORPTION ;LABOUR HOUR RATE? EVALUATE COST ACCOUNTING SYSTEM ADOPTED MANUFACTURING OVERHEADS-APRIL INDIRECTLABOUR&SUPERVISION MACHINING 33,000 FABRICATION 22,000 ASSEMBLY 11,000 PAINTING 7,000 STORES 44,000 MAINTENANCE 32,700 TOTAL 1,49,700 INDIRECTMATERIALS&SUPPLIES MACHINING 2,200 FABRICATION 1,100 ASSEMBLY 3,300 PAINTING 3,400 MAINTENANCE 2,800 TOTAL 12,800 OTHER EXPENSES FACTORY RENT DEPRECIATION BUILDING RATES & TAXES WELFARE EXPENSES (@ 2% of Direct Labour Wages,Indirect Labour & Supervision) POWER (Maint 366/-,Works Office 2,220/-, Balance to Producing Departments) Works Office Salaries, Exp Misc Stores Dept Expenses TOTAL 1,68,000 44,000 2,400 19,494 68,586 1,30,260 1,190 4,33,930

TOTAL CHARGE RECOVERABLE (A) Direct Material Cost (B) Direct Labour Cost (C) Overhead Machining Fabrication Assembly Painting TOTAL OVERHEAD (D) Fixed Fee TOTAL CHARGES (A+B+C+D)

487.92 460.10 50 x 2.38 = 119.00 40 x 3.39 = 135.60 20 x 1.60 = 32.00 20 x 2.39 = 47.80 334.40 200.00 1,482.42

QUESTIONS Q3(A). Procedure for distribution of overhead costs. COMMENTS Welfare expenses should have been distributed depending upon no. of personnel Stores dept. cost should have been distributed on basis of no. of requisitions Maintenance dept cost should have been distributed on basis of labour hours/machine hours Q3(b). Choice of base for overhead absorption COMMENTS For machining and fabrication should have been machine hours For polishing and assembly labour hour, if labour intensive. SUGGESTIONS The operation data must have more parameters like no. of personnel, machine-hours, no of requisitions for better appreciation. The overheads are 35% of prime cost which is fairly high and needs to be reconciled whether itis on account of operating inefficiencies or accounting error. Predetermined/estimated rates need to be compared with actuals to assess correctness

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