Wednesday, July 26, 2017

Cost and management accounting concept cost analysis and control

Item of expenses
Basis for apportionment
1.       Power and jobbing repairs, overtime premium.
2.       Material handling expenses, internal transport, store service expenses, insurance or stock
3.       Workers insurance, contribution to provident fund, workers compensation, indirect wages.
4.       Welfare and recreation expenses, canteen expenses medical expenses, time keeping supervision.
5.       Lighting, heating, rent, rates, taxes, maintenance of buildings, a/c’s, fire precaution services.
6.       Rate, taxes, depreciation, maintenance, insurance charges of building
7.       Lighting expenses, light coins, power or kilo watt power
1.       Direct allocation

2.       Value of materials passing through cost centers.


3.       Direct wages



4.       Number of workers



5.       Floor area occupied



6.       Capital value or asset value


7.       House power or kilowatt power                         
1)    The modern company is divided into 4 dept A,B,C & D. ABC are the production depts. And D is the service dept. the actual cost for a period are as follows.
                   Rent                         1000
                   Repairs to plant      600
                   Dept of plant          450
                   Employees liabilities   150
                   For insurance
                   Fire insurance in    500
                   Respect of stock
                   Supervision             1500
                   Power                      900
                   Light                        120
The following information is available in respect of 4 departments
Item
A
B
C
D
Floor area(sq mts)
1500
1100
900
500
No. Of employee
20
150
10
5
Total wages
6000
4000
3000
2000
Value of plant
84000
18000
12000
6000

Value of stock
15000
9000
6000
----
HP of plant
24
18
12
6
A portion the 2 various depts. On the most equitable basis

Working notes:
1500:1100:900:500                                   24000:18000:12000:6000
15:11:9:5 = 40                                                   24:18:12:6
                                                                             4:3:2:1
Item
Basis of apportionment
Total amount
     A
    B
    C
    D
Rent
Floor area(15:11:9:5)
1000
375
275
225
125
Repairs of plant
Value of plant(4:3:2:1)
600
240
180
120
60
Depreciation of plant
Value of plant(4:3:2:1)
450
180
135
90
45
Employee liabilities
Direct wages(6:4:3:2)
150
60
40
30
20
Fire insurance
Value of stock(5:3:2)
500
250
150
100
--
Supervision
Number of employees(4:3:2:1)
1500
600
450
300
250
Power
HP of plant(4:3:2:1)
900
360
270
180
90
Light
Floor area (15:11:9:5)
120
45
33
27
15
                                       Total                5220        2110   1533    1072    505
Methods of reapportionment:
                                 Secondary distribution of overheads

Direct re-distribution      step-distribution       reciprocal services
Method                                method                           method

                    Simultaneous eqn        repeated distribution   trail & error
                          Method                  method                           method      
1.       In light engineering company the following particulars have been collected from the 3months period ending on 31st march 1999.
Item
Production dept
A                B               C
Service dept
D                          E
Direct wages
Direct materials
Staff (no)
Electricity (k.wt)
Light coins
Asset value
Area occupied (S.M)
2000      3000     4000
1000      2000     2000
100         150       150
4000       3000     2000
10           16            4
60000     40000  30000
150          250        50
1000              2000
1500              1500
50                     50
1000               1000
6                       4
10000              10000
50                     50
The expanses for period where, motive power 550/- lighting power 100/-  stores overhead 400/- facilities to staff 1500/- dep 15000/- general O.H 6000/- repairs & maintenance 3000/- rent & rates 275/- apportion of 3:3:4 and those the service dept ‘D’ is the ratio 3:1:1 to depts. A,B & C respectively.

Items
Basis for apportionment
Total amount
A
B
C
D
E
Direct material

Direct wages

Motive power

Lighting
Power

Stores overheads

Facilities to staff

Depreciation

General OH’s

Repairs & maintenance

Rent & rates

Dept & exp

Dep.D exp
Direct allocation

Direct allocation
Electricity (4:3:2:1)

Light coins (5:8:2:3:2)

Direct material (2:4:4:3:2)

Staff no (2:3:3:1:1)

Asset value (6:4:3:1:1)
Direct wages (2:3:4:1:3)

Asset value (6:4:3:1:1)

Area occupies (3:5:1:1:1)
--


--

550


100


400


1500


15000

6000


3000


275

6010

4515
--


--

200


25


50


300


6000

1000


1200


75

1803

2709
--


--

150


40


100


450


4000

1500


800


125

1803

2709
--


--

100


10


100


450


3000

2000


600


25

2404

903
1500


1000

50


15


75


150


1000

500


200


25

4515


1500


2000

50


10


75


150


1000

1000


200


25

6010


Step distribution method:
i)A manufacturing company has 2 production dept P1,P2,P3 service dept time keeping stores dept , maintenance dept. the dept somany shows the following expenses for july 1998.
Product Dept                                             Service Dept   
P1                    P2               Time keeping     Stores                Maintenance
16000          10000                  4000                5000                       3000
        The other information relating to departments as follows:-
Item
Production dept

Service department



P1    
P2
T
S
M
No of employees
40
30
_
20
10
NO of stores refusitions
24
20
_
_
6
No of machine hours
2400
1000
_
_
_
                                      
(4:3:2:1)=4000*4/10
Name of
Dept            primary
                     Distribution (T)ime keeping
                                                                       (S)tores
                                                                                      (M)aintenance
P1                16000            1600                2784            2458
P2                 14000             1200               2320            1638
T(s1)              4000                ---                     ---                 ---
S(s2)               5000               800                  ---                 ---
M(s3)             3000               400                 696                ---
                       38000            4000               5800            4096
      Simultaneous Equation method:
                             A company has 3 production depts and 2 service depts. And for a period the departmental distribution as given below.
Production Dept                                                 Service Dept
P1           P2         P3                                  S1                         S2
800       700       500                                 234                      300
 The Expenses of the service dept charged on a % basis as follows:
                               P1               P2             P3             S1               S2
S1                            20%                  40%            30%            _                 10%
S2                           40%                   20%            20%            20%            _
                                       Prepare a statement showing the apportionment of 2 service depts. Exps and 2 production dept exps by simultaneous equation method.
Solution:
   X=S1 overheads 234+20%y
   Y=S2 overheads 300+10%x
    X=234+0.2y   1 * 10
   Y=300+0.x     2 * 10

10x  = 2340+2y    3
10y  = 3000+x      4
Equation 3×5
50x=11700+10y   5
10y=3000+x         6
-10y+50x=11700   7
10y-x      = -3000  
     49x = 14700                  x=14700÷49        x=300
X=300 substitute in equation 7
10y-300=3000
10y=3000+300
 Y=3300/10
Y=330
                                       Secondary Distribution
Item
Total

P1
P2

P3

As per Distribution

2000
800

700
500
S1. Dept as per Distribution
300×90/100=270

270
(2:4:3)
60

120
90
S2.Dept as per Distribution
330×80/100=264

264
(2:1:1)
132

66
66


2534
992

886
656

Repeated Distribution:
                                       There are 3 production depts. Namely A,B,C and Service depts. Namely X,Y .
Item
A
B
C
X
Y
Total dept O.H’s per Primary distribution
6300
7400
2800
4500
2000
            The company decided to charge the service depts. Cost on the bases of the following%

                                       A       B       C       X       Y
X                                    40%  30%  20%  _        10%
Y                                     30%  30%  20%  20%    _
Find the total overheads of production depts. Charging service dept. on simultaneous    equation method.
Solution:
X   =  X overheads      4500+20%Y
Y   =  Y  overheads      2000+10%X

X=4500+0.2y1×10
Y=2000+0.x   2×10
10X =  45,000+2y3×5
10Y =   20,000+x  4
-10y+50x=2,25,000
   10y-x     =20,000
49x=2,45,000
X=2,45,000/49           x=5000.
10y-x=20000
10y -5000=20,000
10y=25000
Y=25000/10=2500       therefore y=2500
Item
Total
A
B
C
As per Distribution
16500
6300
7400
2800
X dept as per distribution
5000×90/100
4500
(4:3:2)
2000
1500
1000
Y dept as per distribution
2500×80/100
2000
(3:3:2)
750
750
500

23000
9050
9650
4300
1.       Strong man limit has 3 production depts. A ,B ,C and 2 service depts. X&Y.The following particulars   are available   for  the month of March 1991.
                     Rent-15000
                     Muncipal-5000
                      Electricity-2400
                      Indirect wages -6000
                       Power -6000
                       Dep on machinery -40000
                     Canteen   Expenses -30000
                    Other labor expenses – 10000
The  further details are available as
Under item
Total
Production dept


Service dept



A
B
C
X
Y
Floor area
5000
1000
1250
1500
1000
250
Light coins
240
40
60
80
40
20
Direct wages
40000
12000
8000
12000
6000
2000
HP of machines
150
60
30
50
10
---
Cost of machines
200000
48000
64000
80000
4000
4000
Working hours

2335
1510
1525




The expenses of service dept allocated In the following manner
Dept
A
B
C
X
Y
X
20%
30%
40%
--
10%
Y
40%
20%
30%
10%
--

Item
Basis of apportionment
Total amount
A
B
C
X
y
Rent
Floor area (4:5:6:4:1)
15000
3000
3750
4500
3000
750
Municipal taxes
Floor area (4:5:6:4:1)
5000
1000
1250
1500
1000
250
Electricity
Light coins (2:3:4:2:1)
2400
400
600
800
400
200
Indirect wages
Direct wages (6:4:6:3:1)
6000
1800
1200
1800
900
300
Power
HP of machines (6:3:5:1)
6000
2400
1200
2000
400
--
Dep. Of machinery
Cost of machines (12:16:20:1:1)
40000
9600
12800
16000
8000
8000
Canteen expenses
Direct wages (6:4:6:3:1)
30000
9000
6000
4000
4500
1500
Other labor exps
Direct wages (6:4:6:3:1)
10000
3000
2000
3000
1500
500


114400
30200
28800
38600
12500
4300
X=S1  12500+10%Y
Y=S2   4300 +10%X
X=12500+0.10Y×10
Y=4300+0.10X×10
10X=125000+Y
10Y=43000+X×10
10X -   Y    =125000
10X+100Y=430000
       99Y    =555000
Y=555000/9       Y=  5606
10X –Y =125000
10X-5606=125000
10X=125000+5606
X=130606÷10    X=13061
                                       Secondary    distribution
Item
Total
A
B
C
As per distribution
97600
30200
28800
38600
X dept exps 13061×90/100
11755
11755
(2:3:4)
2612
3917
5224
Y dept exps 5606×90÷100
5045
5045
(4:3:2)
2242
1121
1681

114399
35054
33839
45505



Machine hour rate:
                 Expenses
                      Bases
i)Standard Charges rent and rates
      Floor area occupied including surroundings space.
ii)Heating &Lighting
      Number of light coins used or floor area occupied.
iii)Supervision, Foreman salary or operator or wages.
      Time devoted by supervision.
iv)Lubricated oils and consumable stores.
      Cost experiance
v)Insurance
      Insurable value of machine or cost of machine.
vi)Miscillaneous expenses
      Equitable bases depending up on facts.
vii)Machine exps
      Cost of machine+ installation charges-scrap value ÷ Life of machine .in hours
viii)Power
      Actual consumption as shown by meter readings or estimated consumption ascertain from past experience.
ix)Repairs &Machine
      Cost of repairs spread over its working life.

Problems:
1)A machine is purchased for cash Rs 9200.Its working life estimated to be 18000hrs after which its scrap value is estimated accomplished it is assumed from cost experience that.
i.         The machine is work for 1800hrs annually.
ii.        The repairs charges will be 1080 during the hold period of life of the machine.
iii.      Power consumption will be 5 units per hrs at 6ps per unit.
iv.      Other annual charges are estimated to be rent of dept(machine price) 1/5 of total space 780 rs
v.       Light 12 points in the dept 2 points engaged in the machine 288 rs
vi.      Foreman salary ¼ of this time is debated in the machine 6000rs
vii.    Insurance premium per machinery 36 rs
viii.   Cotton wastage 60
ix.      Scrap value 200
Find out the machine hour rate of about data allocation of the work exps to all jobs for which machine is used.
Calculation of machine hour rate
Item
Amount
Amount
Standard charges:
Rent 780/5
Lighting & heating
288/12 × 2
Foreman salary
6000 × ¼
Insurance
Cotton wastage
Total standard charge
1800/1800
Machine expenses:
Depreciation
9200-200/18000 = 9000/18000
Repairs
1080/18000
Power
5×0.06

156

48

1500

60








1.00



0.50

0.60

0.30

240

1800

2)machine x cost is 110000 and has life of 15 years and scrap value is 5000 rs. The normal working hrs per annum is 2400 hrs. including 10% preventive maintenance. The following information is available for machine.
i.         Rent 2400/- per annum
ii.        Light 50 per month
iii.      Power 700 per month. 10 % per unit
iv.      Suppliers 1800/- per annum
v.       Repairs 3600/- per annum
vi.      Wages of the operator 2rs per hrs and supervision 600 per month ascertain the comprehensive rate.
Working notes:
2400× 10/100 = 240
2400-240 = 2160

Calculation of machine hour rate
Item
Amount
Amount
Standard charges:
Rent
Lighting (50×12)
Suppliers
Supervision (600×12)
Total standard charges
12000/2160

Machine expances:
Depreciation
110000-5000/15 = 7000

7000/2160

Power 700×12 = 8400/2160

Repairs 3600/2160

wages

2400
600
1800
7200





5.55




3.24




3.89


1.66

2

1200

                                                                                      16.35
4)Using the machine hour rate as calculated about work out the amount of factory overhead to be observed on the following
Job number      total hrs        production time in hrs        setting obtain hrs
    605                    100                             80                                       20
    505                    100                              70                                       30
Calculate the machine hour rate
Item
Amount
amount
Standard charges:
Rent 50000/70000 × 2500
Lighting & heating
20000/70000 × 2500
Supervision 130000/26
Reserve 1500/26
Total standard charges
7558/1800
Machine expenses:
depreciation 23000-0/10 = 2300/1800
setting & adjusting labor
200×6 = 1200/1800
Power
Machine operator 6×1/3,2



Factory overheads for job no 605
80×20.13
Job no 595
70 × 20.15


1786

714

5000
58









4.19


12.78

0.66
0.50

2.00



7558







20.13
1610


1409
3019