As we know, Apportionment of overhead means to divide total cost of overhead among different departments or branches or cost centers of a company. So, for knowing it detail, it is better to understand it with practical examples.
Here we have given two examples for learning apportionment of overheads.
1st Example
The Bengal Wholesale Co. is making a study of the relative profitability of the two products it handles. In addition to direct costs, indirect distribution costs to be allocated between the two products are as follows.
Inventory charges (taxes, insurance etc.) Rs. 7800, Storage costs (warehousing etc.) Rs. 14000, packing and shipping costs Rs. 72000, Salesman salaries Rs. 85000. Order entry and billing Rs. 45000.
The following information is available :
Here we have given two examples for learning apportionment of overheads.
1st Example
The Bengal Wholesale Co. is making a study of the relative profitability of the two products it handles. In addition to direct costs, indirect distribution costs to be allocated between the two products are as follows.
Inventory charges (taxes, insurance etc.) Rs. 7800, Storage costs (warehousing etc.) Rs. 14000, packing and shipping costs Rs. 72000, Salesman salaries Rs. 85000. Order entry and billing Rs. 45000.
The following information is available :
Product A
|
Product B
| |
Selling Price per unit Rs.
|
50
|
100
|
Cost per unit Rs.
|
30
|
60
|
Annual Sales (units)
|
10000
|
8000
|
Average Inventory (units)
|
1000
|
800
|
Number of one time invoices
|
2500
|
2000
|
One unit of product A requires a storage space twice as much as product B. The cost to pack and ship one unit is the same for both.
Salesman are paid salary plus 5% commission on sales and equal amount of efforts are put forth on the sales of each of the products.
(A )(Set up a schedule showing how you would apportion the indirect distribution overhead between products. )
(B) (Prepare the statement showing the relatively profitability of the two products)
(A )Schedule Showing the Apportionment of Indirect
Distribution Overheads
Items
|
Basis of Apportionment
|
Total (in Rs.)
|
Product A (in Rs.)
|
Product B (in Rs.)
|
Inventory Charges
|
Average Inventory Value
( 1000X30) : (60X 800)
{30 :48}
|
7800
|
3000
|
4800
|
Storage Cost
|
Average Inventory and storage space
(1000:400)
|
14000
|
10000
|
4000
|
Packing and Shipping Cost
|
Annual Sales (units)
10:8
|
72000
|
40000
|
32000
|
Salesmen’s salaries
|
Equal Proportion
|
85000
|
42500
|
42500
|
Commission
|
Annual Sales Value
A 5% on 500000
B 5% on 800000
|
65000
|
25000
|
40000
|
Ordering entry and billing (25:20)
|
No. of invoices
|
45000
|
25000
|
20000
|
145500
|
143300
|
(B) Comparative Statement of Profitability
Product A
(in Lakh Rs.)
|
Product B
(in Lakh Rs.)
| |
Annual Sales Value (A)
|
5 .00
|
8.00
|
Less Cost of Sales
|
3.00
|
4.80
|
Gross Profit
|
2.000
|
3.200
|
Less Indirect Distribution Overheads
|
1.455
|
1.433
|
Profit (B)
|
0.545
|
1.767
|
Profitability (B/A X 100)
|
10.9%
|
22.1%
|
2nd Example
A match factory sells its goods in four district zones - south, north, east and west. You have been given the following particulars in respect of each zone
The following are the expenses of the previous year:
Sales manager and his establishment ............Rs.124000
Travelling representatives salaries ................Rs. 72000
Travelling representatives travelling allowance Rs.24000
Advertising................................................. Rs.48000
Godown rent at out-station
south zone Rs. 15000
north zone Rs. 21000
east zone Rs. 9600
west zone Rs. 7200
---------------------------
............................................................Rs. 52800
Insurance on inventories at out stations ....Rs.24400
commission on the sales @ 2 and 1/2% .....Rs.62500
Transportation charges outward Rs. 6......... Rs.72000
---------------------------------------------------------------
........................................................479700
==================================
You are required to compute selling overhead rates as a percentage of sales on the basis of apportionment.
A match factory sells its goods in four district zones - south, north, east and west. You have been given the following particulars in respect of each zone
Zone
|
Net Sales (In lakhs) (in Rs.)
|
No. of salesmen (in Rs.)
|
Average mileage covered
|
Advertising budget
|
Stock held at time (in lakhs)
|
Transportation charges
|
South
|
5.00
|
30
|
3000
|
25%
|
2.00
|
25%
|
North
|
13.50
|
50
|
4500
|
30%
|
5.00
|
50 %
|
East
|
3.50
|
20
|
2700
|
25%
|
1.50
|
15 %
|
West
|
3.00
|
25
|
2400
|
20%
|
1.50
|
10 %
|
The following are the expenses of the previous year:
Sales manager and his establishment ............Rs.124000
Travelling representatives salaries ................Rs. 72000
Travelling representatives travelling allowance Rs.24000
Advertising................................................. Rs.48000
Godown rent at out-station
south zone Rs. 15000
north zone Rs. 21000
east zone Rs. 9600
west zone Rs. 7200
---------------------------
............................................................Rs. 52800
Insurance on inventories at out stations ....Rs.24400
commission on the sales @ 2 and 1/2% .....Rs.62500
Transportation charges outward Rs. 6......... Rs.72000
---------------------------------------------------------------
........................................................479700
==================================
You are required to compute selling overhead rates as a percentage of sales on the basis of apportionment.
Particular
|
Basis of Apportionment
|
Total
|
Zones
| |||
South
|
North
|
East
|
West
| |||
Sales managers and his establishment
|
Sales
(10:27:7:6)
|
124000
|
24800
|
66960
|
17360
|
14880
|
Traveling representative salaries
|
No. of salesmen
(6:10:4:5 )
|
72000
|
17280
|
28800
|
11520
|
14400
|
Travelling allowance
|
No. or salesmen X mileage
|
24000
|
5035
|
12587
|
3021
|
3357
|
Advertising
|
Budget rates
(25:30:25:20)
|
48000
|
12000
|
14400
|
12000
|
9600
|
Godown rent at outstation
|
Direct
|
52800
|
15000
|
21000
|
9600
|
7200
|
Insurance on inventories
|
Value of stock
(4:10:3:3)
|
24400
|
4880
|
12200
|
3660
|
3660
|
Commission on sales
|
2 and ½ on sales
|
62500
|
12500
|
33750
|
8750
|
7500
|
Transport charges (outward)
|
As given
(5:10:3:2)
|
72000
|
18000
|
36000
|
10800
|
7200
|
479700
|
109495
|
225697
|
76711
|
67797
| ||
21.9%
|
16.72%
|
21.91%
|
22.60%
| |||
No comments:
Post a Comment