Cost Account numbers are used for covering the Administration, Selling and Distribution overheads. Labour Welfare expenses No. They can further be described. 4. endstream For the efficient working, a factory is divided into a number of sub-divisions. iv. Pre-determined overhead rate is determined in advance of the actual production and is computed by dividing Additional records of labour must be maintained if this method is to be used. research such a manner so that each department represents a division of activity of the organisation such as repairs (20% 3,000 of Q) 600 Examples of Factory Overhead 3. may be estimated on the following three basis. 13. Copyright 10. Deviation of 15 0 obj after sales service The guidelines used to find a suitable basis for the apportionment of overheads expenses are explained below. exhausted or the figures become to small to be considered for further apportionment. After classification of overheads all the items of overheads are collected properly under suitable account heading. Insurance on tools and fixtures, power, repairs and maintenance cost etc. The process of redistribution of the cost of service departments among the production departments is known as secondary distribution. ii. After proper distribution the account of first service department will be closed. Horse power of machines or machine This is also known as departmentalization of overheads. Direct Wages Actual 3,000 3,000 4,000 10,000 10,000 5,000 35, This method must be compliant with the terms of the lease. (ii) Preparation of budget estimates: Unless a distinction between fixed and variable expenses is made, it Apportionment of Overhead Expenses: Definition Apportionment is the process of distributing overhead items to cost centers on a fair and reasonable basis . insurance of A comprehensive or composite machine hour rate can also be computed by including wages of the machine operator to the total overheads allocated to the machine. Prepare cost estimates for allocation and apportionment of overheads, including between reciprocal service departments. All rights reserved. For instance, suppose there are two 4.Efficiency method: According to this principle, the apportionment of overheads is made on the basis of the production targets. latter department, which will then be distributed among production department. Discuss the meaning and treatment of under-absorption and over-absorption of overheads and apply the same in cost computation. responsibility for incurring this expenditure is determined in relation to output. stream Disclaimer 9. [ 11 0 R] Then by judgment a line of best fit which passes through all or most of. Required fields are marked *. Overhead Control Account and credited to the Wages account. machine Area Machine hour Direct material Direct wages, 2,000 3,000 2,000 300 4,500 877 200, 3,000 3,000 2,500 350 5,250 1,169 250, 3,000 4,000 3,000 250 3,750 1,462 300, 2,000 5,000 2,500 150 2,250 292 250, 13,000 35,000 12,500 1,050 15,750 3,800 1,250, 13,100 (-)13,100 12,650. Terms of Service 7. Overheads, Methods of segregating semi-variable comprises direct overhead expenses incurred in the departments itself as well as the apportioned overhead The departmentalisation is done at sources. No. However, it should be noted that an expenditure is fixed within specified limit relating to time or Methods of Segregating Fixed and Variable Overhead Elements Selling and Distribution Overheads Administration Overheads Manufacturing Overhead Primary and Secondary Distribution of Overhead Single Overhead Rate and Multiple Overhead Rates Types of Capacity Levels Absorption Overheads Under-Absorption and Over-Absorption Treatment of Certain Items endobj Apportionment of Overhead: Method # 1. of working hours 1,000 2,500 1, of employees engaged on machines. This amount of overheads does not change because the work is being done on copper instead of iron. Miscellaneous expenses Should be apportioned on some suitable basis. Expenses which can be identified with a territory, a customer or product can factory When classification of overheads on some scientific and consistent basis is complete, overheads are the amount has to be distributed over the various cost units, again on an estimated basis. repairs and The two together make Rate of labour turnover or number of employees in each department, Direct labour hours, machine hours number of employees. Expenses in relation to a department may be direct but are indirect in These are then distributed among the This method is quite illogical and inaccurate because overheads are in no way related to the cost of materials consumed. The next service department is taken up and its cost is apportioned and this process is going on till the cost of last service department is apportioned. incurred during the accounting period by the actual quantum (quantity/value) of the base selected. This video explains different methods of distribution of overheads ieDirect distribution Method and Repeated distribution method of re apportionment of servi. (iii) High and low points method: Under this method the output at two different levels i. high or low point When the measurement of actual benefit is difficult or impossible or uneconomical this method is adopted. Indirect expense can come from several sources such as cash book, factory journals or vouchers. and maintenance of Methods for secondary apportionment of service overhead When service department is giving its services to other service departments and production departments then following method are used Repeated Distribution Method Simultaneous Equation Method When there are only two service departments Direct Method Step Method REPEATED DISTRIBUTION METHOD iv. Prohibited Content 3. action. 3. When the ratio of skilled and unskilled labour is constant. Unlike materials prices, labour rates do not fluctuate so frequently. Image Guidelines 5. (ix) Works clerical vi. At the end of the Highest 2,820 8, Repairs & Maintenance Actual repairs or hours worked by the Machines. (iv) Sundry expenses Overcharge and under charge is ignored. (iii) Depreciation, The apportionment method and its constant revamping is a true sign of a democracy trying to obtain equal representation for all of its citizens. service departments to another service department. This method does not distinguish between work done by skilled and unskilled workers, as unskilled workers take more time and thus give rise to more factory expense than skilled workers. which manual/machine operations and other process of production of articles or commodities take on some equitable basis. 1. endobj Generally, there are three methods to apportionment of overhead; they are: Direct distribution method Under this method, the costs of service department are distributed or apportioned to production department. Canteen expenses Number of employees. So cost apportionment will arise in case of expenses common to more than one cost centre or unit. ), Macroeconomics (Olivier Blanchard; Alessia Amighini; Francesco Giavazzi), Fundamentals of Aerodynamics (John David Anderson), Pdf Printing and Workflow (Frank J. Romano), Environmental Pollution and Control (P. Arne Vesilin; Ruth F. Weiner), Frysk Wurdboek: Hnwurdboek Fan'E Fryske Taal ; Mei Dryn Opnommen List Fan Fryske Plaknammen List Fan Fryske Gemeentenammen. (b) the actual process of classification of the various items of expenses into one or another of the Cost is allocated when the cost centre uses whole of the benefits of the expenses. Indirect labour is obtained in the first place, from the time cards and pay rolls. units. Nederlnsk - Frysk (Visser W.), Contemporary World Politics (Shveta Uppal; National Council of Educational Research and Training (India)), Financial Accounting: Building Accounting Knowledge (Carlon; Shirley Mladenovic-mcalpine; Rosina Kimmel), Auditing and Assurance Services: an Applied Approach (Iris Stuart), Marketing-Management: Mrkte, Marktinformationen und Marktbearbeit (Matthias Sander), Oral and Maxillofacial Pathology (Douglas D. Damm; Carl M. Allen; Jerry E. Bouquot; Brad W. Neville), Analysis and Interpretation of Financial Statements, Jawaharlal Nehru Technological University, Kakinada, Birla Institute of Technology and Science, Pilani, Object Oriented Analysis and Design (CS8592), Laws of Torts 1st Semester - 1st Year - 3 Year LL.B. In a factory a product does not pass through Service department (S), but service department renders service to production departments for carrying on production function. the budgeted overhead expenses for the accounting period by the budgeted base for the period i. Pre-determined overhead rate = consumers service, It deals with only proportion of items of cost. economically identified with a specific saleable cost unit. on unit cost decreases as production increases and vice versa. are termed as direct expenses. which pass CIMA, London has defined it as that part of cost attribution which shares costs among two or more cost centers or cost units in proportion to the estimated benefit received, using a proxy. be considered as direct expenses. depreciation (as a whole) semi-variable. (iii) Depreciation, repairs (i) Direct Allocation: Overheads are directly allocated to various departments on the basis of expenses for each department respectively. Correspondingly, on a As per summary 4,000 2, Note 3 On the last reapportionment, D's overheads are apportioned on the basis of 75/95 to A and 20/95 to B. apportionment and absorption of overheads. Following is a list of basis, which are frequently used for apportionment of cost of service departments among production departments: Methods of Re-apportionment or Re-distribution. Uploader Agreement. endobj (c) Trial and error method: In this method the cost of one service department is apportioned to Distinctive features of indian and western political thought. eg: rent on the basis of floor area. The first stage in the analysis of overheads is the selection of approximate cost centres. logical and reasonable basis. apportionment when necessary. Power H. The extra amount (iii) Apportionment of Service Department Overheads: After the overheads have been classified between production and service departments the costs of service departments are charged to such production departments which have been benefitted by their services. apportioned to production departments, without taking into consideration any service from one Now, on what basis should the overheads be charged to each department? Here we have given two examples for learning apportionment of overheads. 5. <> Semi-variable overheads do not fluctuate in direct Then the service departments may be ignored for apportioning the expenses. Wages paid to workers against The size of the fleet of buses have been fixed taking into consideration the potential number of users. (i) It segregates factory overhead costs and computes the total cost of each service departments. Some After having collected the overheads under proper standing order numbers the next step is to arrive at the Copyright 10. Direct Labour hours or Machinery hours. Lowest 1,500 6, department contribution, general welfare expenses, compensation and other fringe benefits, supervisions etc. Rate per hour 9 6 5. and heating of Apportionment P1 P2 P3 Office Stores Workshop. endobj While making primary This may be through allocation or absorption. <> Apportionment means allotment of proportion of items of cost to cost centres or cost units. department, power department, tools department, stores department, cost department, cash department, etc. The basis adopted should be such by which the expenses being apportioned must be measurable by the basis adopted and there must be proper correlation between the expenses and the basis. This rate is determined by dividing the overhead expenses by the total number of direct labour hours. The following factors are taken care of while dividing an organisation into number of departments: (i) Every manufacturing process is divided into its natural divisions in order to maintain natural flow of The functional classification divides the overheads in the following manner : 1. For a period, the expenses in the various departments of a factory were as follows: //
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