Particulars Amt Amt

Purchases
(+) Op. stock
(-) Clo. stock
Direct Labor
Direct Expenses
Prime Cost
FOH

(+) Op. stock of WIP

(-) Clo. stock of WIP
Factory Cost
AOH

Cost of Production
(+) Op stock of FG
(-) Clo stock of FG
COGS
SDOH

Total Cost
Profit
Sales

Variable cost per unit = Change in cost

Change in unit
Methods of Absorption of Product OH
DM cost % rate
OH Rate = Production OH * 100
Direct Materials Cost

DL cost % Rate
OH Rate = Production OH *100
DL Cost

Prime Cost % Rate

OH Rate = Production OH *100
Prime Cost

Direct Labour Hour rate Production OH

OH Rate = Direct Labor Hours

Machine Hour Rate

OH Rate = Production OH
No. of Machine Hours
1
Particulars Amt Amt Note: These items are not included as they are financial items
Purchases 832000 Cash Discount
(+) Op. stock 188000 Bad debt written off
(-) Clo. stock -200000 820000
Direct Labor 238400
Direct Expenses 32000
Prime Cost 1090400
FOH
Indirect Wages 16,000
Repairs to Plant & Machinery 42400
Rent, Rates & Taxes - Factory 12000
Depreciation Written Off- Plant & Machinery 28,400
Electricity Charges (factory) 48,000
Fuel (for boiler) 64,000
Manager’s Salary (20/100) 9,600 220400
(+) Op. stock of WIP
(-) Clo. stock of WIP
Factory Cost 1310800
AOH
Salaries to Administrative Staff 40,000
Rent, Rates & Taxes - Office 6400
Depreciation Written Off – Furniture 2,400
Director’s Fees 24,000
General Charge 24,800
Manager’s Salary (80/100) 38,400 136000
Cost of Production 1446800
(+) Op stock of FG
(-) Clo stock of FG
COGS 1446800
SDOH
Freights-Outward 20000
Traveling Expenses 12400
Salesmen’s Salaries and Commission 33,600 66000
Total Cost 1512800
Profit 378200
Sales 1891000

2
Particulars Amt Amt Note: These items are not included as they are financial items
Purchases 4750000 Bad debt written off
(+) Op. stock 400000 Debenture Interest
(-) Clo. stock -500000 4650000 Dividend paid
Direct Labor 1750000 Income tax provision
Direct Expenses 125000 Goodwill written off
Prime Cost 6525000 Sales tax paid
FOH Transfer to machinery
Works Managers Salary 300,000 Replacement fund
Salary-Factory Employees 300000 Inetrest on loan
Factory Rent & Insurance 72500 Discount allowed
Power Expenses 95,000
Other Production Expenses 420,000
Loose tools written off 10,000 1,197,500
(+) Op. stock of WIP 150000
(-) Clo. stock of WIP -100000
Factory Cost 7772500
AOH
Salary-Office Staff 200,000
General Expenses 320000
Bank Charges 5,000 525,000
Cost of Production 8297500
(+) Op stock of FG 60000
(-) Clo stock of FG -150000
COGS 8207500
SDOH
Salary-Salesman 100000
Selling Expenses 92500 192500
Total Cost 8400000
Profit 200000
Sales 8600000

3
Particulars Amt Amt Working Note
Purchases 3650000 1. Direct Labor 175% - 1750000
(+) Op. stock 800000 Works Overhead 100% - ?
(-) Clo. stock -1060000 -260000 WOH = 1000000
Direct Labor 1750000
Direct Expenses 2. COGS - AOH = Rs. 11200/unit
Prime Cost 5140000 COGS = PC + FOH + AOH
FOH 1000000
(+) Op. stock of WIP 1050000 3. 1 unit - Rs. 700
(-) Clo. stock of WIP -1450000 600000 ? - 350000 (selling expenses)
Factory Cost 5740000
AOH 250000 4. COGS =PC + FOH +AOH
Cost of Production 5990000 = (11200*500) + AOH
(+) Op stock of FG 1760000 = 5600000 + 250000
(-) Clo stock of FG -1900000 -140000 = 5850000
COGS 5850000
 Interest payment of Rs.2, 00,000 on Working Capital
would not affect the above rate of profit
SDOH becauseinterest payment is a financial item.
Selling Expenses 350000
Total Cost 6200000
Profit 1300000
Sales 7500000

4
Particulars Current year Next Year Working Note 2. Profit on Cost
% Amt % Amt 1. C+P = 1600 Profit/Cost x 100 = 392/1208 x100 = 32.45%
DM 0.3 C 362 0.39 C 471 1.13 C + 0.60 P = 1600
DW 0.4 C 483 0.44C 532 Simultaneous Equation Revised SP
PC 0.7 C 846 0.83 C 1003 0.6 C + 0.6 P = 960 S = C+P
(+) OH 0.3 C 362 0.30 C 362 1.13 C + 0.6 P = 1600 = 1365 + 32.45%
TC C 1208 1.13 C 1365 0.53 C + 640 = 1808
P P 392 0.60 P 235 C = 640/0.53 = 1208
S 1600 1600 1600 1600

5
1
TC= VC + FC
Variable cost per unit = Change in cost
Change in unit

19400 - 14600
1200 - 800
4800
400
= Rs. 12/unit

Particulars 800 Units 1200 Units 1450 Units

TVC 144
TFC 5000
TC of Production

2
Apportion/ allocation of Overheads (Primary Distribution)
Particulars Basis A B C X Y Total Note:
Direct Material Service Only - - - 2000 1000 3000 Power Expense A B C X Y
Direct Wages Service Only - - - 1000 2000 3000 HP 50 40 20 15 25
Factort Rent Area Sq.ft 10000 5000 10000 5000 10000 40000 MH 1000 2000 4000 1000 1000
(2:1:2:1:2) HP*MH 50000 80000 80000 15000 25000
Power MH*HP 5000 8000 8000 1500 2500 25000
(5:8:8:1.5:2.5)
Depreciation Cost of Asset 2000 4000 2000 1000 1000 10000
(2:4:2:1:1)
Sundries Direct Wages 25000 10000 40000 5000 10000 90000
(5:2:8:1:2)
Total OH 42000 27000 60000 15500 26500 171000

Total Cost of Service Departments

X = 15500+0.05Y
Y = 26500+0.10X

(x - 0.05y = 15500) * 0.10

-0.1x + y = 26500

0.1x - 0.005y = 1550

-0.1y + y + 26500
0.995y = 28050
y = 28050/ 0.995 x = 15500 + 0.05(28191)
Y = Rs. 28191 X = 16910

Reapportion/ reallocation of Overheads (Secondary Distribution)

Particulars Basis A B C
OH as per Primary Distribution 42000 27000 60000
x = 16910 - 10%
= 15219 (45:15:30) 7610 2537 5073

y = 28191 - 5% (60:35) 16915 9867 -

= 26781
Total OH 66525 39404 65073
MH 1000 2000 4000
OH Rate/ Hr 66.53 19.70 16.27

3
Total Cost of Service Departments
X = 16000 + 0.1y
Y = 24000 + 0.2x

(X - 0.1y = 16000) * 0.2

- 0.2x + y = 24000

0.2x -0.02y = 3200

- 0.2x + y = 24000
0.98 y = 27200
y = 27200/0.98
y = 27755

X = 16000 + 0.1(27755)
X = 16000 + 2776
X = 18776

Reapportion/ reallocation of Overheads (Secondary Distribution)

Particulars Basis A B C
OH as per Primary Distribution 62000 145000 74000
X = 18776 - 10%
X = 16898 (20:40:20) 4225 8449 4225

Y = 27755 - 20%
Y = 22204 (10:60:20) 2467 14803 4934
Total OH 68692 168252 83159
MH 4500 10000 7400
OH Rate/ Hr 15.26 16.83 11.24

4 Reapportion/ reallocation of Overheads (Secondary Distribution)

Particulars Basis A B C P Q Note: * only 3 ratios because Q value is just a small number = 1.2
OH as per Primary Distribution 7810 12543 4547 4000 2600
(total of rent to sundries)
P = 4000 (30:40:20:10) 1200 1600 800 - 400
Q = 2600 + 400 = 3000 (10:20:50:20) 300 600 1500 600 -
P = 600 (30:40:20:10) 180 240 120 - 60
Q = 60 (10:20:50:20) 6 12 30 12 -
P = 12 (30:40:20:10) 3.6 4.8 2.4 - 1.2
Q = 1.2 (10:20:50)* 0.15 0.3 0.75
Total OH 9499.75 15000.1 7000.15
MH 1000 2500 1400
OH Rate/ Hr 9.50 6.00 5.00

2 From 2nd question, we try the same with repeated distribution method
Reapportion/ reallocation of Overheads (Secondary Distribution)
Particulars Basis A B C X Y
OH as per Primary Distribution 42000 27000 60000 15500 26500
X = 15500 (45:15:30:0:10) 6975 2325 4650 - 1550
Y = 26500 + 1550 = 28050 (60:35:0:5:0) 16830 9818 - 1403 -
X = 1403 (45:15:30:0:10) 631 211 421 - 140
Y = 140 (60:35:0:5:0) 84 49 - 7 -
X=7 (45:15:30:0:10) 3.15 1.05 2.1 - 0.7
Y = 0.7 (60:35:0:0:0)* 0.44 0.25 - - -
Total OH 66524 39404 65073
 MH 1000 2000 4000
OH Rate/ Hr 66.52 19.70 16.27

5 Reapportion/ reallocation of Overheads (Secondary Distribution) Step ladder method

Particulars Basis X Y Z P Q R S
OH as per Primary Distribution (FOH) 193000 64000 83000 45000 75000 105000 30000
P = 45000 No.of employees
(20:25:17:0:10:8:10) 10000 12500 8500 - 5000 4000 5000
Q = 75000 + 5000 = 80000 Direct Labor Hours
(4:3:4:0:0:6:3) 16000 12000 16000 - - 24000 12000
R = 133000 Area in sq.m
(6:3:3:0:0:0:2) 57000 28500 28500 - - - 19000
S = 66000 Direct Labor Hours
(4:3:4:0:0:0:0) 24000 18000 24000 - - - -
Total OH 300000 135000 160000
DLH 4000 3000 4000
OH Rate 75 45 40

6 Dep = Cost - Scrap

Life
= 9200-200
18000
= 0.5

Repair Charges 1080 - 18000 hours

? - 1hour
= 0.06/hr

Production Overhead Amount Rate per hour (/1080)

Rent (780*1/5) 156
Light (288*2/12) 48
Foreman's salary (6000*1/4) 1500
Insurance 35
Cotton Waste 60
1799 1.67
Repair 0.06
Power (5*0.06) 0.3
Depreciation 0.5
MHR 2.53

DM 450
DL 250
PC 700 77% - 725.3
(+) OH (MH*MHR) (10*2.53) 25.3 25% - ?
TC 725.3
Profit 216.65
Sales 941.95

7 Methods of Absorption of Product OH

DM cost % rate
OH Rate = Production OH * 100 = 200000*100 = 40%
Direct Materials 500000

DL cost % Rate
OH Rate = Production OH *100 = 200000*100 = 33.33%
DL Cost 600000

Prime Cost % Rate

OH Rate = Production OH *100 = 200000*100 = 18.18%
Prime Cost 5L + 6L

Direct Labour Hour rate Production OH = 200000 = Rs. 2/hr

OH Rate = Direct Labor Hour 100000

Machine Hour Rate

OH Rate = Production OH = 200000 = Rs. 0.5/hr
No. of Machine Hours 400000

Particulars DM DL PC DLH MH
DM 15000 15000 15000 15000 15000
DL 20000 20000 20000 20000 20000
Prime Cost 35000 35000 35000 35000 35000
Overhead DLH (3500*2), MH (12000*0.5)
(40% of DM), (33.33% of DL)... 6000 6667 6363 7000 6000
Total Cost 41000 41667 41363 42000 41000
Profit (50% on sales) 41000 41667 41363 42000 41000
Sales 82000 83334 82726 84000 82000
Dr. Process 1 A/c Cr.
Particulars Qty Rate Amount Particulars Qty Rate Amount
To materials a/c 15000 0.1 1500 By normal loss (3%*15000) 450 0.25 112.5
To labour a/c 7500 By abnormal loss (bal) 300 0.72 216
To expenses a/c 1575 By process 2 a/c 14250 0.72 10260
15000 0.1 10575 15000 1.69 10588.5

Particulars P1 P2 P3
Input 15000 14250 13650
(-) Normal loss 450 855 1365
Expected output 14550 13395 12285
(-) Actual output 14250 13650 12012
Abnormal loss/gain 300 -255 273

Process 1 = TC - CNL Process 3 = TC - CNL

TV - NLV TV - NLV

= 10575 - 112.5 = 39493.5 - 1365

15000 - 450 13650 - 1365

= 10462.5 = 38128.5
14550 12285

= 0.72* = 3.1

Dr. Process 2 A/c Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
To process 1 a/c 14250 0.72 10246.5 By normal loss (6%*14250) 855 0.5 427.5
To materials a/c 2250
To labour a/c 12000 By process 3 a/c 13650 1.9 25978.5
To expenses a/c 1425
To abnormal gain (bal) 255 1.9 484.5
14505 26406 14505 26406

Dr. Process 3 A/c Cr.

Particulars Qty Rate Amount Particulars Qty Rate Amount
To process 1 a/c 14250 0.72 10246.5 By normal loss (6%*14250) 855 0.5 427.5
To materials a/c 750
To labour a/c 9750
To expenses a/c 1425
To abnormal gain (bal) 255 1.9 484.5
14505 22656 855 427.5

to process a/c 450 0.25 112.5 by bank a/c 450 0.25 112.5
to process a/c 855 0.5 427.5 by bank a/c 855 0.5 427.5
to process a/c 1365 1 1365 by bank a/c 1365 1 1365
2670 1905 2670 1905

Abnormal loss A/C

to process a/c 300 0.72 216 by bank a/c 300 0.25 75
to process a/c 273 3.1 846 by bank a/c 273 1 273
by p/l a/c loss 714
573 1062.3 573 1062

Abnormal Gain A/C

to bank 255 0.5 127.5 by process2a/c 255 1.9 484.5
to p/l prft 357
255 484.5 255 484.5

on prdoduct passes through 3 processes

details process 1 p2 p3 totAL
direct materilals 2600 1980 2962 7542
direct wages 2000 3000 4000 9000
prcdctn oh 9000

note 1000 units at rs 3 each were introduced to p1.

the following additional data are obtained prcdctn OH is recovred as 100% on dire t wages
details output normal loss scarp value
p1 950 units 5% rs 2
p2 840units 10% rs 4
p3 750units 10% rs 6
prepare process accounts n other necesarry accts

process 1 a/c
particulars QTY RATE AMT PARTICULAR QTY RATE AMT
to materials 1000 3 3000 by normal loss a/c 50 2 100
to sundry material a/c 2600
to labour a/c 2000 by process 2a/c 950 10 9500
to prdctn OH alc 2000
1000 9600 1000 9600

particulars p1 p2 p3
input 1000 950 840
less- normal loss 50 95 84
expected output 950 855 756
actual output 950 840 750
abnormal loss/gain 0 15 6

process 2 a/c
particular QTY RATE AMT PARTICULAR QTY RATE AMT
to process a/c 950 10 9500 by normal loss 95 4 380
to sundry materials 1980 by abnormal loss 15 20 300
to direecr wages 3000 by process a/c 840 20 16800
to prductn oh 3000
950 17480 950 17480

process 3a/c
to process a/c 840 20 16800 by normal loss 84 6 504
to s materila 2962 by abnormal loss 6
to direct wages 4000 by finished goods 750
to prdctn 4000
840 27762 840 27762

Normal loss a/c

to process 1 a/c 50 2 100
to process 2 a/c 95 4 380
to process 3 a/c 84
Why is it marginal costing essential?
Accept an order when selling price of that seller is more than your variable cost. Additionally, the total fixed cost should remain constant
(additional production must be permitted by install capacity). Market conditions in our geographical location must also align.

Variable costs are charged to product and fixed costs are written off in full against available contribution.

VC = DM+DL+VOH

What is the difference between absorption costing and marginal costing?

Three major differences:

PVR (profit volume ratio) for example is 40%. It means that contibution is 40% of sales.
So 1-PVR = VC%
FC+VC+Profit = SP
Contribution = FC+Profit

1-PVR = VC%
PVR = Contribution/Sales *100

Contribution = Selling price - VC

Contribution = FC + Profit
Contribution = FC - Loss

PVR = Contribution

BES (Rs) = FC or FC * Selling price per unit

PVR Contribution per unit

BES (units) = FC
Contribution per unit